Fiat Industrial (FI), which owns 89.3% of construction and agricultural equipment manufacturer CNH has planned to combine the two companies into a new single company. FI also owns truck manufacturer Iveco and components company Fiat Powertrain Technologies (FPT), while CNH markets construction equipment under the Case and New Holland brands, as well as Kobleco for some excavators in North America.
Under FI's proposal, the two companies would merge into a new holding company incorporated in the Netherlands, with a primary stock market listing in New York and a secondary listing in Europe. FI says it doesn't expect to pay a premium on existing shares and does not intend to make a cash offer for the 10.7% of CNH it does not own. FI says it hopes to complete the transaction by the end of 2012.
In a letter to the CNH Board, FI chairman Sergio Marchionne said the move would simplify the two companies complex ownerships. "The unwieldy structure requires the FI group to cope with duplicative 'home' jurisdictions and layers of governance which, among other things, unnecessarily complicate intra-group dealings. More fundamentally, the minority shareholding in CNH represents such a small public float that it not only constrains the valuation of both CNH and FI, it also hinders the group's ability to capitalise on strategic opportunities that arise from time to time," he wrote.
Under FI's proposal, existing shareholders in FI or CNH would be entitled to two votes per share in the new corporate entity. New shareholders with single-vote shares could 'earn' a double vote if they held their stock continuously for three years. "This high/low vote structure has been used by other European companies as a fair way to facilitate a stable shareholder base and reward long-term share ownership," said Mr Marchionne.
The exchange ratio between existing shares in FI and CNH, and the new company will be determined by stock market prices in March and April this year, before the idea of a merger was first mooted.
The merger would have to be approved by both companies' boards. However, FI said it will vote all of its shareholdings in CNH in favour of the transaction.