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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Jim McMannis who wrote (22226)	1/26/2005 1:10:26 PM
From: mishedlo	Read Replies (1) \| Respond to of 116555

GM in deep s*it on its stupid Fiat deal If GM is forced to pay a hefty settlement to wriggle out of the put option -- or worse, has to acquire the Italian auto maker and its $10 billion in debt -- it could weigh heavily on an already burdened balance sheet. Analysts believe GM will offer Fiat a cash settlement to get out of the deal, but the price will be high. Under the terms of the original 2000 agreement, GM would have to pay off in cash immediately all Fiat Auto intra-company debt, estimated at about $6 billion. And the two companies have set up purchasing and engine-manufacturing divisions, which would probably have to be broken up, despite the fact that these operations are saving the companies millions of dollars a year. GM has already written off the $2.4 billion it has spent on Fiat, and it will have to pay another $2 billion to get Fiat to cancel the "put option," analysts claim. Why did GM get into such a bad deal? It wanted to block a $12 billion cash offer for Fiat Auto from DaimlerChrysler, part of a plan to unseat GM as the world's biggest automaker. GM blocked the DCX move by offering Fiat a strategic alliance. It has turned out to be a costly decision. edmunds.com Fiat Auto has 8 billion euros ($10.4 billion) of debt, which Detroit-based GM might be forced to assume in a takeover. That could trigger a rating downgrade, as could an agreement by GM to make a "large payment" to resolve the conflict, Standard & Poor's analyst Scott Sprinzen wrote last month. freep.com But what's another $10B on top of $290B of debt they already have? I think the worse part might be adding all those new losses, Fiat Auto's operating losses for 2004 are expected to total around $1.3 billion. With Fiat Auto burning through cash rapidly, the put option has emerged as a potential lifesaver for Mr. Marchionne, a turnaround specialist who arrived at the Italian auto maker in June following a management shakeup. He has made resolving the issue his top priority and forced GM into a tense set of negotiations. money.cnn.com GM has already written down the value of its 10% stake in Fiat to zero, and zero is probably generous. If not for political reasons, I don't see why Fiat should settle for a $2B payment, unless they have doubts about their legal claims. Seems it would be better just to dump.

To: Jim McMannis who wrote (22226)	1/26/2005 1:24:29 PM
From: mishedlo	Respond to of 116555

Patriots Quarterback Sues Over Cadillac Playoff Ad 01/25/2005 14:27:27 LOS ANGELES (Reuters) - New England Patriots quarterback Tom Brady has sued General Motors Inc. for $2 million, saying the carmaker ran ads he made under an expired contract to promote its Cadillac brand. Brady, who last weekend led his National Football League team to their third Super Bowl berth in four years, claims in his lawsuit in Los Angeles Superior Court that GM ran newspaper ads in Texas and Boston featuring him for a month after his contract had expired Jan. 1, 2004. In the suit, filed on Monday, Brady said GM could not resist riding his fame as most valuable player of the 2002 and 2004 Super Bowls to plug its luxury cars after he twice refused to renew a 2003 promotional contract. portfolios.abcnews.go.com