Fiat and General Motors have begun renegotiating the put option that gives Fiat the right to sell its remaining stake in Fiat Auto to GM.
The partners are also trying to agree on a plan for recapitalizing Fiat Auto, according to sources close to the negotiations.
The partners are discussing:
GM is understood to want the put option canceled in exchange for helping with the recapitalization. GM would go along with a request by Fiat group to double its stake in Fiat Auto to 40 percent only in exchange for assets, such as Fiat Auto's Brazilian subsidiary, or Alfa Romeo.
Fiat group would consider delaying the put exercise date to 2007 or 2008. Fiat sources say they would not accept its complete cancellation.
In addition, Fiat wants GM to invest up to E2 billion into Fiat Auto without Fiat giving away assets.
"The Fiat Auto restructuring plan is credible only if we don't change the size and structure of the company," a Fiat executive said. "Alfa won't be given away, but we could consider a further integration of our activities in Latin America and in some other emerging markets."
The talks are expected to end in compromise. A source said that could mean GM will put about E1.5 billion into Fiat Auto to raise its stake to 30 percent, in exchange for creating a 50-50 joint venture merging Latin American operations.
If GM goes along with Fiat plan, Fiat Auto would be spun off from the group and listed as a standalone company. All other Fiat group assets, including Ferrari-Maserati, would remain within Fiat SpA.
If GM disagrees, Fiat would have to keep Fiat Auto as part of the group and spin off all other units in a new holding company. Otherwise, Fiat would violate the March 2000 master agreement, allowing GM to cancel the put option.
In either case, Fiat SpA is itself preparing a E3 billion recapitalization. Part of this money, plus over E1.5-1.8 billion to be cashed from the sale of Fiat's aviation unit, will be used for Fiat Auto's recapitalization.