UPDATE 2-Fiat Industrial wins over CNH board with improved bid

Thu Nov 22, 2012 7:43am EST

* Offer is for 12 pct of the company it does not own

* Worth $1.5 bln in cash and shares

* New offer includes $10 per share cash dividend

* Fiat Industrial stock up, analysts positive

By Jennifer Clark

MILAN, Nov 22 (Reuters) - Italy's Fiat Industrial has won over the board of its U.S. tractor and construction machinery unit CNH with an improved $1.5 billion bid that will create the world's third-largest capital goods group by sales.

The new offer, which added an approximate $300 million cash dividend to a previous all-share bid, will allow Fiat Industrial to buy the 12 percent of CNH it doesn't already own to fully capture the U.S. business's higher profits.

It also hopes the unified firm will benefit from the higher valuation investors ascribe to CNH than to Fiat Industrial.

Strong U.S. sales of agricultural equipment mean CNH's Case and New Holland brands accounted for about two thirds of the combined group's revenue to Sept. 30, and nearly 80 percent of its 1.6 billion euros trading profit.

The U.S. contributed twice as much to the combined group's trading profit in 2011 as Europe did.

That means investors place a higher value on CNH, whose market capitalisation and debt taken as a multiple of core profit - or EV/EBITDA - is 10.8 versus 9.3 for Fiat Industrial, according to Thomson Reuters data.

While seen as more valuable than Fiat Industrial, CNH currently trades at a lower valuation multiple than its U.S. peers Caterpillar and John Deere because of a lack of stock liquidity.

Some analysts said on Thursday a U.S. listing for the group should allow it to close these valuation discounts.

LONG NEGOTIATIONS

U.S.-listed CNH's board had balked at the all-paper, no-premium offer made on May 30, as minority investors in the United States often obtain what is in effect a significant 'squeeze-out' premium.

Fiat Industrial's latest offer included the addition of a $10 cash dividend per CNH share.

At 1240 GMT, Fiat Industrial's shares were up 1.4 percent at 8.515 euros. CNH's shares are listed in New York, where they closed at $47.50 on Wednesday.

The two groups will be merged into a newly-formed company in which CNH shareholders will receive 3.828 shares, and Fiat Industrial shareholders one share.

The new company - which has not been named yet - will move its main listing to New York, keeping Milan as a secondary listing. Fiat Industrial was spun off from sister company Fiat in 2011 and is controlled by Italy's Agnelli family.

Fiat Industrial Chairman Sergio Marchionne said the extraordinary dividend to CNH minority shareholders should be paid by the end of this year.

Marchionne said on May 30 he saw 140-150 million euros of financial savings from the deal in reduced borrowing costs.

The two companies are already being managed as one.

On Nov. 12, Fiat Industrial said it created a group executive council (GEC) to make decisions on operating performance and key strategic decisions.

CNH CEO and President Richard Tobin was named chief operating officer, making him the No. 2 executive in the GEC under Chairman Sergio Marchionne.

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