The Telegraph
Since 1st March, 1999
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Fiat retains chairman, names joint CEO

Paris, Dec. 14: Ending a bitter week-long struggle for control of Fiat, the companyís board on Friday retained Paolo Fresco as chairman and joint chief executive and promoted the chief operating officer, Alessandro Barberis, to join him in the chief executiveís job.

Barberis, 65, ran the Piaggio Motor Scooter Company, which is also controlled by the Agnelli family of Fiat, before joining Fiat in June. He succeeds Gabriele Galateri di Genola, who announced his resignation on Tuesday.

Fresco held his seat thanks to Fiatís powerful creditor banks, but also its patriarch, Gianni Agnelli. Agnelli chose Fresco three years ago to transform Fiat into a modern conglomerate. Together they turned back a quiet conspiracy that included Agnelliís younger brother, Umberto, to oust Fresco and change Fiatís management.

In some ways, the attack on Fresco was similar to others elsewhere in Europe that have ousted executives who failed to stanch losses at unprofitable units.

In his three years at the helm, Fresco pushed Fiat into new businesses and expanded others, but he neglected the main auto unit and amassed a $ 33 billion debt load that forced Fiat to reach a $ 2.8 billion agreement in May with creditor banks to stay afloat.

But Fresco was also in the sights of the government of Prime Minister Silvio Berlusconi, who was eager to assuage Italians frightened by widespread layoffs at Fiat.

The government gained the backing of Umberto Agnelli, who feared the banks. If Fiat failed to turn around, the banks could exchange their loans for equity, effectively replacing the Agnellis as Fiat's main shareholders.

> ``It's a power struggle for the biggest industry in Italy,'' said Gareth

> Williams, who follows Fiat at the Actinvest Group. ``The struggle is



> But the Fiat case goes further than Italian power struggles. For some

> analysts, the move by Berlusconi, a former businessman, reflects growing

> willingness by European politicians to intervene economically to protect

> jobs and their hold on office. Berlusconi was impressed by a recent

> government study on the future of Fiat that showed Italian public opinion

> substantially favorable to a government stake in Fiat, if that could save

> jobs.


> On Friday, as Berlusconi attended a summit meeting of European leaders in

> Copenhagen, his spokesman denied that the center-right government


> taking such a stake. But for Berlusconi, much is at stake. The Italian

> economy is sputtering, and one of two Italian factories Fiat wants to


> is in Sicily, one of his regional power bases.


> Berlusconi is not alone. In Germany, Chancellor Gerhard Schroeder, a


> Democrat, intervened with enormous state aid to rescue a private phone

> company, MobilCom, that faced insolvency and the loss of 5,000 jobs in the

> last days of his campaign for re-election in September. In France, tension

> is rising as the center-right government carries out the nonintervention

> policy of the economics minister, Francis Mer, a former steel executive,


> the risk of higher unemployment.


> The setback dealt to Umberto Agnelli and Berlusconi also illustrates the

> increasing conflicts between European governments and the capital markets.

> To foster growth and economic prosperity, Europe has made greater use of

> international capital markets in recent years. Yet to unseat Fresco,


> Agnelli and Berlusconi allied with the old-line Milan investment bank

> Mediobanca, once the arbiter of a narrow Italian capitalist system.


> Under Fresco, a former vice chairman of General Electric versed in the


> of modern international capitalism, Fiat came to depend heavily on the

> capital markets. When Fiat faced a cash squeeze last spring, four of


> biggest banks raised $2.8 billion of loans to keep Fiat afloat. By

> protecting Fresco, the banks were protecting their interests.


> Another observer watching the outcome of the struggle was General Motors.

> Fresco linked Fiat's auto business with GM's in March 2000 through a share

> swap agreement that includes a put option. The option gives Fiat the right

> to require GM to buy the whole Fiat auto unit after 2004 - a prospect that

> unsettles Italian politicians.


> The plan proposed by Umberto Agnelli, Mediobanca and Berlusconi was to

> replace Fresco, then renegotiate the put option with GM to prevent Fiat


> falling into foreign hands. But as Gianni Agnelli became aware of its

> implications, according to people close to the family, he and John Elkann,

> his 27-year-old grandson, a Fiat board member and a kind of apprentice to

> Fresco, threw their crucial support behind Fresco.


> Williams of Actinvest said that virtually all the value of Fiat's auto

> division was now in the put option. ``It's giving Fresco more power now,''

> he said. `'Now he can implement his business plan, then take a decision in

> 2004.''


> But Fresco made known this week that next summer, when he turns 70, he


> to step aside. Moreover, Gianni Agnelli, his ally, suffers from prostate

> cancer and his energies are limited.


> Asked the meaning of Friday's management shifts, one executive close to


> board replied, ``One, the creditor banks won their battle; two, Umberto

> didn't win; but three, for how long' This is the real question mark.''

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