Italy's Fiat sells Ferrari stake

Fiat hopes Ferrari stake sale can help turn around car business

MILAN, Italy (CNN) -- Fiat, the struggling Italian industrial giant, has agreed to sell a stake in Ferrari for 755.2 million euros ($765 million) to reduce debt and boost its balance sheet.

Mediobanca, Italy's biggest investment bank, plans to buy 34 percent of Ferrari, valuing the entire sport-car maker at about 2.4 billion euros.

Fiat had planned to sell the Ferrari stake on the stock market later this year as part of its ongoing measures to reduce debt by 3 billion euros. But with global stock markets slumping, Fiat may not have received as much money as it wanted and many stocks sales have failed to take off.

Prada, the Italian fashion house, pulled plans to float on Wednesday for the third time in just over a year.

MORE STORIES • Fiat to float Ferrari to cut debt  • Fiat names new CEO  • Fiat shares fall after Moody's downgrade  • Fiat jumps after chief resigns  • Fiat's domestic market share shrinks again  • Fiat to cut 6,000 jobs  • Fiat 'to speed up sell-offs'

Mediobanca hopes to sell shares and float Ferrari by June 2003, the banks said. The prospect of Mediobanca helping Fiat has raised eyebrows because the two groups clashed in recent years, most recently over Fiat's successful takeover bid last year for sprawling Italian conglomerate, Montedison.

The bad blood began when the Agnelli family, which controls Fiat, backed a hostile bid for Telecom Italia in 1999.

Fiat announced on Thursday the appointment of a new CEO a day after the company's debt was downgraded by ratings agency Moody's to just one notch above "junk".

New Chief Executive Gabriele Galateri, 55, who was drafted in by the Agnelli family, said he was confident Fiat could emerge from its latest crisis. He will share the CEO post with Fiat Chairman Paolo Fresco.

His predecessor Paolo Cantarella resigned last month after agreeing a 3 billion euro lifeline with creditor banks. Analysts said Galateri's financial background might strengthen the chance of Fiat selling its core but loss-making car unit, Fiat Auto.

The company may still be forced to sell its 80 percent stake in Fiat Auto, which has been the biggest drain on the group's finances, dragging the group to a first quarter loss of 529 million euros. Fiat has an option to sell its stake to General Motors from 2004. GM (GM) bought the other 20 percent of Fiat Auto two years ago.

The car unit has seen its market share slide as competition and the global economic slowdown cut into sales. In its downgrade statement on Wednesday, Moody's said selling Fiat Auto might help avoid Fiat being further downgraded to junk status.