* CNH special committee says deal terms inadequate
* Fiat Industrial signals terms could be revised
* Fiat Industrial shares down after merger plan rejected
* CNH share rise 4 percent
By Jennifer Clark and Lisa Jucca
Oct 15 U.S. farm and construction equipment
maker CNH rejected the terms of a proposed merger with
Italy's Fiat Industrial, a setback for Chairman Sergio
Marchionne's plans for a U.S. listing.
Fiat Industrial already controls 88 percent of CNH, but a
special committee advising the U.S. company on the merger and
whose approval is needed for it to happen said on Monday it had
"unanimously concluded that the proposal is inadequate and would
not be in the best interests of CNH and its shareholders."
The merger is important because it would create a single,
U.S.-listed company that would benefit from lower financing
costs and other synergies, enabling it to compete more
effectively with global rivals such as Caterpillar.
"Fiat Industrial remains committed to the strategic and
financial benefits of the merger," Marchionne said in a
statement which signalled the company was prepared to discuss
revised terms for the deal.
Fiat Industrial was spun off from Italian carmaker Fiat
and the merger with CNH is seen by analysts as
something of a blueprint for Fiat's planned buyout of the 41.5
percent stake in U.S. automaker Chrysler it does not already
The all-paper offer is based on market prices in March and
April, before the plan was publicly disclosed, which works out
to about 3.8-3.9 Fiat Industrial shares for each CNH share. Fiat
Industrial, listed in Italy, has a market capitalization of 10.5
billion euros, or about $13.6 billion. U.S.-listed CNH's market
value is $9.7 billion.
CNH stock has been trading at about half the valuation of
rivals Caterpillar and John Deere, fuelling concern among
investors in the U.S. company that they are being shortchanged.
Fiat argues it should not pay a premium as the deal will not
create cost savings.
A May 30 investor presentation by Fiat Industrial showed
CNH's enterprise value at 3.2 times earnings before interest,
tax, depreciation and amortization.
That compared with multiples of 6.3 for Deere, 6.1 for
Caterpillar and 6.4 for Scania, the Swedish truckmaker
controlled by Volkswagen.
CNH shareholders contacted by Reuters said they supported
the logic of the merger but disliked the price being offered.
"It's a good plan, but CNH shareholders are not being
adequately compensated for what we bring to the table in terms
of our contribution to profits or synergies at the current offer
price," said a CNH shareholder who asked not to be identified.
SIT DOWN AND TALK
Fiat Industrial said it had asked its advisors to meet CNH's
special committee to "explore whether the parties can reach
agreement on revised terms for a merger transaction on a basis
broadly consistent with that of the proposal."
Asked late on Monday when the advisors and the special
committee would be meeting, Marchionne said he "understood that
the meetings have started today."
"We need to sit down with them and understand the rationale
behind their decision," Marchionne told reporters on Monday.
Sources familiar with the matter had told Reuters earlier in
October that the plan faced delays after independent CNH
directors raised doubts about the terms.
Shares in Fiat Industrial closed down 0.3 percent at 7.81
euros, underperforming the Milan stock index, which closed 0.5
percent higher. CNH shares closed 4.2 percent higher at $41.96
in New York.
Italian investment bank Mediobanca reckons that the combined
group would save between 140 million and 150 million euros
annually in financing charges.
"The news is negative as the deal ... is at risk," said
Massimo Vecchio, an analyst at Mediobanca, keeping his rating on
the stock at 'perform.'
"In the best case it will be significantly delayed and
executed with worst terms," he said.
A second analyst said the merger was still a reasonable
move, since it should reduce the Italian group's strong discount
compared to competitors.