CNH Global Favors Fiat Merger (CAT) (CNH) (DE)

Two days ago, CNH received a revised merger proposal from Fiat Industrial S.p.A. (FI). According to news source Reuters, Fiat Industrial has raised the merger offer by 25.6% for the remaining 12% stake. Fiat Industrial already owns 88% of CNH Global.

The company stated that the Special Committee of the Board of Directors will consider the revised proposal in consultation with its financial and legal advisors; J.P. Morgan and Lazard. The legal advisors for the transaction are Cravath, Swaine & Moore LLP, De Brauw Blackstone Westbroek N.V. and Bonelli Erede Pappalardo.

The Special Committee is in favour of the increased offer from Fiat Industrial regarding the proposed strategic merger with CNH and has directed its advisors to work with Fiat to execute the transaction based on the revised offer.

The merger proposal was put forward by Fiat Industrial in May this year with an objective of creating a single company with a single trading stock.

In July, CNH Global formed a special committee of independent directors, including Thomas J. Colligan, Edward A. Hiler, Rolf M. Jeker, Kenneth Lipper and Jacques Theurillat, to evaluate the merger proposal.

Consequently, the merger of CNH and Fiat will result in the formation of a new company in the Netherlands. The shareholders of CNH Global would receive 3.82 shares of the new company for each CNH share while FI shareholders would receive one share of new company share for each FI share held. The shareholders of CNH will also be paid a $10 cash dividend per CNH share before the merger.

Fiat Industrial had earlier affirmed that the merger will not lead to any attrition or hamper the ongoing operations of the company.

The company’s primary competitors include big players such as Caterpillar Inc. (CAT) and Deere & Company (DE). We believe the merger will be a profitable venture as both companies sustain a formidable position in the industries where they operate. Further, the merger will unite their strengths and elevate their position in the global economy.

We maintain a Neutral recommendation on CNH GLOBAL NV. Our recommendation is supported by a Zacks #3 Rank, which translates into a short-term rating of Hold.