Fiat Industrial Puts Trust in the New World
Fiat Industrial has lost faith in the Italian stock market, if not--yet--in Italy itself.</br></br>The truck maker's plans to merge with its 88%-owned subsidiary CNH, which makes tractors in the U.S. under the Case and New Holland brands, will also bring its listing to New York from Milan. Italians fear Fiat Industrial's stock-market relocation might mean it starts shifting actual operations out of Italy, too. The company firmly denies that--though its divergent results must make the idea tempting.</br></br>The valuation logic is clear. CNH trades at a significant discount to its U.S. peers like Caterpillar and Deere, reflecting its small, 12% free float. The Fiat Industrial group has been a victim of the Italian stock market's decline, which is trading more cheaply than other European bourses bar Greece and Austria. At 4.3 times expected earnings before interest, taxes, depreciation and amortization, Fiat Industrial trades at a 12%-33% discount to peers Volvo, MAN and Scania. A full U.S. listing should give it a valuation closer to U.S. multiples.</br></br>The merger should also lower Fiat Industrial's exposure to expensive Italian debt, potentially halving its annual [euro]400 million (about $495 million) net interest cost, Sanford C. Bernstein estimates. And if Fiat Industrial ever needs to raise new equity, that should be easier in New York's deeper-pocketed markets than in struggling Italy.</br></br>Still, this sensible restructuring shouldn't necessarily herald a broader move out of Italy for Fiat Industrial. That it has provoked such fears says much about Italian insecurity about the country's loss of competitiveness. In practice, Fiat Industrial would find it costly to move from Italy, where it has nearly a quarter of its plants and employees; in the last five years it has invested [euro]3 billion in the country.