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TURIN, Italy — Fiat's plans to demerger its capital goods businesses that were announced in April were approved by the Italian company's board of directors Wednesday.

It was also revealed that Fiat Group posted euro 113 million in net profits during the second quarter, compared with a net loss of euro 179 million in the same period a year ago.

Explaining the board's approval of the demerger in more detail, basically, this means that certain assets (mostly shareholdings) and liabilities (financial debt) of Fiat's truck, industrial and marine powertrain, agricultural and construction equipment businesses will be taken from Fiat S.p.A and placed into Fiat Industrial S.p.A, which is the newly incorporated company.

As such, these segments and Fiat's car (and auto-related) businesses will be split from each other. 

So, there will be Fiat S.p.A., which will include the auto and auto-related businesses, and then the separate Fiat Industrial S.p.A, which will include the industrial segments. 

The demerger date is slated for Jan. 1, 2011. At that point, Fiat shareholders will be given shares of Fiat Industrial "on a one-to-one ratio," officials noted. 

Following their split, there will be separate listings for Fiat and Fiat Industrial on the Milan Stock Exchange. Moreover, the two will run independently with each being separately listed and having their own management teams and boards of directors. 

"The demerger will provide strategic and financial clarity to both businesses and enable them to strategically develop independently of each other," officials explained. "Additionally, the board believes that the transaction would allow for the proper valuation in the capital markets of these two businesses." 

They continued: "The demerger will be fully proportional (i.e., each shareholder will receive a number of shares of the same class equal to the number of shares of such class held in Fiat at the completion date of the demerger) and therefore as of the demerger date the shareholders of Fiat Industrial will be the same shareholders of Fiat." 

Moving on, the demerger means that Fiat's total equity will see a reduction of approximately euro 3.75 billion. Officials emphasized that "such reduction (achieved through a correspondent reduction of the share capital and the other reserves) will not cause the cancellation of any shares but will result in a proportional decrease of the nominal value of each class of shares that, after the demerger date, will be equal to euro 3.50." 

As a result of this, Fiat Industrial's share capital will see a roughly euro 1.91 billion boos,t and about euro 1.84 is slated to be attributed via other reserves. 

Fiat Industrial's number and classes of shares will be exact same as those for Fiat S.p.A, officials noted, pointing out that there will be a nominal value of euro 1.50 for each class of Fiat Industrial shares. 

Because these provisions do not go into effect until the demerger date (Jan. 1, 2011), the 2010 financial statements do not include them. 

Officials also noted that, "As Fiat owns treasury shares representing approximately 3 percent of Fiat capital stock and such shares will not be transferred to Fiat Industrial, after the demerger Fiat will also hold approximately 3 percent of Fiat Industrial capital stock. 

"No material amendments will be made to Fiat existing incentive plans, except for any reference or entitlement to purchase or be granted Fiat S.p.A. shares which as a result of the demerger, will be changed to a combination of Fiat and Fiat Industrial shares; such plans will be serviced through treasury shares and shares of Fiat Industrial received pursuant to the demerger," they added. 

For the demerger to be completed, it must meet the approvals of shareholders and from Consob and the Italian Stock Exchange. 

Fiat's chairman and chief executive officer has been allowed by the board to hold a meeting of ordinary and extraordinary shareholders so that the demerger can be approved, along with amendments to the by-laws. 

Officials explained that these amendments would stem "from the demerger (including the reduction of the aggregate amount currently available for the purchase of treasury shares) or are required by recently enacted corporate law regulation." 

It is anticipated this meeting will take place Sept. 16. 

The company stressed that because the demerger is being made at book value, this year's consolidated results of the group and Fiat S.p.A. results will see no impact. 

"No shareholder withdrawal rights will be triggered as a result of the demerger," officials also emphasized. 

The company noted that the public can go to Fiat headquarters and the office of Italian Stock Exchange S.p.A to access the demerger plan, board of directors' report and the information document. 

These are also available via www.fiatgroup.com. 

"Finally, Fiat Industrial Group received a highly confident letter jointly signed by Barclays Capital, BNP Paribas, Citi, Crédit Agricole Corporate and Investment Bank, IntesaSanpaolo S.p.A., Société Générale Corporate & Investment Banking, The Royal Bank of Scotland plc, and Unicredit Corporate Banking S.p.A. for a new facility of up to euro 4 billion (to be available as a combined of a revolving credit facility and a term loan) which is expected to be finalized before the demerger date," officials noted. 

"Such facility will serve for general corporate purposes and working capital needs, including the repayment after the demerger date by Fiat Industrial of intercompany financing provided by Fiat up to and including the demerger date," they added.

Quarterly Results

Looking at the second-quarter results for Fiat Group in more detail, total revenues were roughly euro 14.84 billion, up from approximately euro 13.18 billion in the second quarter of 2009.

The automobiles businesses (Fiat Group Automobiles, Maserati, Ferrari), in particular, saw their revenues climb 6.7 percent to about euro 7.93 billion.

"The automobiles business continued to improve, despite the phase-out of eco-incentives in Italy and Germany," officials noted. 

As far as trading profit, Fiat's auto businesses were at euro 270 million, compared to euro 227 million in the year-ago period. Overall, Fiat Group's trading profit was euro 651 million, an increase of euro 341 million.