Private Equity News & Analysis

Private equity syndicate to buy part of Fiat subsidiary

The Italian giant has agreed to a E460m cash and assumed debt deal for half of its Teksid components business.

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Fiat, the Italian industrial group which is under growing pressure from its bankers and shareholders to reduce its debt burden and pare back its marginal businesses, has agreed to sell half of its Teksid components manufacturing unit to an international group of private equity firms.

The firms participating in the E460m deal are Questor Management of the US, the private equity operations of JP Morgan Chase and AIG and the Italian firm Private Equity Partners. The transaction involved E170m of cash and E290m of assumed debt.

The Financial Times reports that the business, which produces aluminium auto components, is the profitable half of the Teksid unit and saw revenues of E866m for the last financial year (a two per cent increase on the previous year).

Questor has over $1bn under management and says its specialisation is to bring 'capital, turnaround and management expertise to non-core units of Fortune 1000 companies.' The firm professes a particular appetite for turnaround situations and 'even, distressed companies.' Local Milan-based firm Private Equity Partners, set up by former Chase M&A banker Fabio Sattin, and which has JP Morgan Partners as an investor, used its knowledge of the sector and of Fiat in particular to help advance discussions between the parties.

Fiat continues to struggle with ongoing and massive losses at Fiat Auto which has prompted not only a change of personnel at the top of the organisation but also a concerted effort by the group's bankers to restructure the business and realise significant cash from asset sales. Cash was also generated by the listing of a third of prestige car maker Ferrari, owned by Fiat, in an IPO in June this year. Nonetheless Fiat has reported a second quarter loss of E34m – with Fiat Auto showing an operating loss of  nearly E400m.

The sale of  the Teksid unit is set to reduce Fiat's net debt of E5.8bn by a further €290m. The Financial Times reports though that Fiat has undertaken to reduce net debt to below E3bn by the first quarter of 2003 – less than six months away. Lazard advised Fiat on the Teksid sale.