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Fiat Chrysler to spin off Ferrari, issue $2.5 billion convertible bond

MILAN (Reuters) – Fiat Chrysler Automobiles (FCA) (FCAU.N) said on Wednesday it will spin off its luxury sports car maker Ferrari and list the shares as part of a bigger scheme which includes a $2.5 billion convertible bond issue to help fund its ambitious business plan.

The newly created FCA, which moved its primary share listing to New York earlier this month, wants to invest 48 billion euros ($61 billion) over the next five years to turn Jeep, Maserati and Alfa Romeo into global brands and rival Volkswagen (VOWG_p.DE) and BMW (BMWG.DE) by strengthening its position in the fast-growing and high-margin market for premium cars.

As part of the capital-boosting measures announced on Wednesday FCA will also sell by the end of 2014 up to 100 million of its shares — including treasury shares and stock that will be issued to offset a share buyback from Fiat investors who opposed the recent merger into FCA — and repay ahead of maturity some Chrysler bonds to remove restrictions on its access to the cash of the U.S. unit, whose buyout it completed earlier this year.

“Today is a big clean-up day,” FCA’s chief executive Sergio Marchionne said, adding that together, all the measures would inject a total of 4 billion euros into the company and help it deal with any eventual contraction in car sales volumes.

“It gives us all the comfort to go and execute the plan up to 2018, it is designed to deal with the worst-case scenario,” he said.

Under the plan FCA said it will list a 10 percent stake in Ferrari in the United States and possibly in Europe through a public offer, hoping to complete the spin-off next year.

The remaining 80 percent stake held by Fiat Chrysler will be distributed to FCA shareholders, including Fiat’s founding Agnelli family which controls 30 percent of FCA.

The other 10 percent of Ferrari is owned by Piero Ferrari, vice chairman and son of the founder Enzo, who died in 1988.

FCA also plans to complete by the end of 2014 the sale of the $2.5 billion bond which later converts into FCA shares, factoring in the prospect of the Ferrari spin-off.

“It is expected that investors participating in the offering, subject to completion of the spin-off of Ferrari being announced today, will be entitled to participate in the spin-off and receive shares of Ferrari pursuant to customary provisions adjusting the conversion terms,” FCA said.


Analysts had questioned FCA’s ability to fund its plan to boost sales by 60 percent to 7 million cars and raise net profit five-fold by 2018, given the currently tough market conditions.

“They seem to have sorted out their capital worries in one go,” said Roberto Lottici, a fund manager at Ifigest.

After ruling out a Ferrari listing for years, Marchionne had hinted at a possible change of heart in a Reuters interview this month, when he described Ferrari as a “phenomenal carrot” for potential U.S. investors.

The initial response to FCA’s Wall Street listing has been muted, with the stock still more heavily traded in Milan.

Ferrari could have a value of between 4.4 and 5.8 billion euros depending on whether it carries any debt or cash, according to brokers. Marchionne only said that all would be “pleasantly surprised” once it is floated.

The move comes just weeks after Marchionne took over at Ferrari, replacing long-serving chairman Luca di Montezemolo after they clashed over strategy and the Formula One racing team’s poor results.

Marchionne said he would remain Ferrari’s chairman after the spin-off and reiterated that Ferrari sales, capped at around 7,000 vehicles a year, would only be raised significantly if there was sufficient demand from the super rich to not jeopardize the brand’s exclusive status.

Milan-listed shares in FCA (FCHA.MI), the world’s seventh-largest carmaker, jumped more than 18 percent to their highest level since April 23. In New York the shares were up 13 percent at $10.96 by 1.34 p.m. ET.

The Agnelli’s holding company Exor has already said it will invest 600 million euros in the mandatory convertible.

“It looks to me like they’ve packaged the Ferrari deal as a pill to help sell the convertible (bond) after results that were far from overwhelming,” Lottici added.

Earlier on Wednesday, FCA reported a 7 percent rise in third-quarter operating profit to 926 million euros, with revenues up 14 percent at 23.6 billion euros.

Analysts have long said FCA, with net industrial debt of 11.4 billion euros at the end of September, needed to raise capital to strengthen its balance sheet, especially as it is battling losses in Europe and weakening Latin American markets.

But some observers questioned the strategic logic of a Ferrari spin-off, at a time when other luxury carmakers have been increasing their ties with volume brands to spread the costs of meeting ever-tightening emission standards.

“We don’t see Ferrari as a sustainable standalone business,” said George Galliers, a London-based analyst with ISI Group.

“Porsche and VW’s rationale to join forces should serve as a good reminder, not to mention the challenges presently facing Aston Martin,” Galliers said – referring to the British sports car maker that has been struggling to fund new model investments without a major industry backer.

A 5 billion-euro enterprise value for Ferrari would price it at nearly 14 times earnings before interest, tax, depreciation and amortization (EBITDA), a Paris-based trader said, putting it well above high-end auto firms and top luxury goods stocks.

“Investors’ appetite for such a high multiple is yet to be tested,” he said. “And then, why sell the crown jewels?”

(Additional reporting by Stephen Jewkes and Stefano Rebaudo in Milan, Bernie Woodall in Detroit and Alexandre Boksenbaum and Laurence Frost in Paris; Editing by Mark Potter and Greg Mahlich)

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Chrysler recalling over 300,000 Ram trucks for fire hazard

DETROIT (Reuters) – Fiat Chrysler Automobiles NV’s Chrysler Group said on Wednesday it is recalling 381,876 Ram trucks mostly in the United States to correct a potential fire hazard.

Chrysler said in a statement that problems with 2010-2014 Ram 2500 and 3500 pickups and 4500 and 5500 chassis cabs equipped with Cummins diesel engines could cause fuel-heater housings to overheat and fuel to leak.

It said 314,704 of the trucks are in the United States, 59,432 in Canada and the rest outside North America.

Chrysler said it was not aware of any accidents or injuries related to the condition.

Separately, the automaker is recalling 184,186 Jeep Grand Cherokee and Dodge Durango SUVs from model year 2014 to upgrade software that manages the vehicles’ electronic stability control system.

Chrysler said the system could be accidentally disabled. No accidents or injuries have been reported.

(Reporting by Paul Lienert in Detroit; Editing by Jeffrey Benkoe)

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Microsoft cuts 3,000 jobs, rounding out July plan

SEATTLE (Reuters) – Microsoft Corp (MSFT.O) said on Wednesday it cut about 3,000 jobs, effectively completing its plan to reduce its workforce by 18,000, or 14 percent of total staff, announced in July.

The majority of the 18,000 job cuts were in the phone handset business Microsoft acquired from Nokia (NOK1V.HE) earlier this year.

“We’ve taken another step that will complete almost all the 18,000 reductions announced in July,” said a Microsoft spokesman. “The reductions happening today are spread across many different business units and many different countries.”

He said 638 of Wednesday’s cuts were in Microsoft’s home state of Washington, where it has its Redmond headquarters.

Microsoft, the world’s largest software company, will have about 110,000 employees once the job reductions are completed. It took a charge of $1.1 billion in its latest quarterly earnings report for the restructuring and integration of the Nokia phone operation and associated job cuts.

(Reporting by Bill Rigby; Editing by Steve Orlosky)

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Renault posts revenue gain on stronger pricing

PARIS (Reuters) – Renault’s (RENA.PA) third-quarter revenue rose 6.7 percent as price increases helped overcome weaker emerging market sales, the French carmaker said on Wednesday, upgrading its European auto market growth forecast for the full year.

Revenue rose to 8.53 billion euros ($10.9 billion) in July-September from 8 billion a year earlier, Renault said in a statement, even as deliveries declined slightly to 612,934 vehicles globally from 614,888.

The gains in Europe, powered by new model launches such as the Captur mini-sport utility vehicle, “offset declines in Renault group’s main emerging markets”, the company said.

Renault’s low-cost cars and emerging market presence helped it ride out a six-year European auto slump that ended last year. But the company is now grappling with weakening currencies and demand in many of the same overseas markets.

Renault raised its European auto market growth forecast to 5 percent for 2014 from the previous 3-4 percent estimate, while warning that emerging markets would remain “adverse and volatile” for the rest of the year.

The carmaker reiterated its full-year sales and earnings targets including a gain in global registrations and operating profit, backed by positive operating cash flow at the core manufacturing division.

“This is a good result, and Renault is indeed on track to reach its full-year targets despite tough Russian and Latin American markets,” Arndt Ellinghorst, a London-based ISI Group analyst, said in a note to investors.

“Renault has the strongest product momentum of any EU mass maker and the average age of its fleet is declining,” he said.

Supported by new models, price increases accounted for a 1.1 percent gain in revenue, Renault said, countered by a 1.3 percent negative effect from falling emerging market currencies such as the Russian rouble, Brazilian real and Argentine peso.

Despite the almost-flat registrations, sales volumes made a positive contribution to revenue by comparison with the year earlier period, when independent dealers sold more vehicles from their existing stocks.

Renault shares closed 0.7 percent higher at 55.59 euros in Paris on Wednesday prior to publication of the quarterly sales statement, valuing the company at 16.44 billion euros.

(Reporting by Laurence Frost; editing by Emelia Sithole-Matarise and David Evans)

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Britain’s Fraud Office launches probe into Tesco accounting scandal

LONDON (Reuters) – Britain’s Serious Fraud Office (SFO) has opened a formal criminal investigation into accounting errors at Tesco (TSCO.L), raising the stakes in a scandal that has hammered the reputation of the country’s biggest grocer.

Already battling challenges on multiple fronts, Tesco said on Wednesday it had been notified of the SFO’s new investigation into the 263 million-pound ($424 million) overstatement of its first-half profits that has led to the suspension of eight senior members of staff.

Tesco is already facing one proposed investor lawsuit in the United States over the accounting irregularities caused by booking deals with suppliers too early.

Britain’s accounting watchdog, the Financial Reporting Council, is also examining how the error came about.

Shares in Tesco, which had been up about 2 percent all day, fell initially on the news by half a percent before recovering to close up 2 percent at 172 pence.

When the SFO launches a full criminal investigation against a company or individuals it has to be satisfied that there are reasonable grounds to believe that conduct might involve serious or complex fraud or bribery.

Such investigations can take years to complete.

“The SFO confirmed today that the director has opened a criminal investigation into accounting practices at Tesco plc,” the independent government department said in a statement.

Tesco said the eight senior staff members remained employees of the company and have been asked to step aside while the matter is investigated, adding that there was no suspicion of wrongdoing.

The 95-year-old group, which has dominated the British high street for years, is battling a severe slowdown in trading that has led to a string of recent profit warnings and resulted in a near halving of its market value this year.

Having only recently appointed a new chief executive and finance director and now looking for a new chairman, Tesco revealed in September it had found a 250 million-pound overstatement in its first-half profits, prompting investors to dump the stock.

Then last week the group said in its delayed first-half results that it now believed the accounting hole stretched to 263 million pounds.

Chief Executive Dave Lewis, just seven weeks into the job, also said he could no longer provide a full-year profit forecast because he did not know how much it would cost to rebuild the firm, Britain’s largest private employer.


The SFO probe will replace one already being carried out by the Financial Conduct Authority (FCA) which will now be closed.

The agency will take months sifting through vast quantities of digital data and other evidence, while seeking to identify and trace witnesses.

Some investigations might qualify for a so-called Deferred Prosecution Agreement (DPA). This is effectively a suspended corporate sentence and a new string to the SFO’s bow that has yet to be tested.

But DPAs, the SFO has said, will only happen where it can persuade a judge that it is in the interests of justice and where a company cooperates fully and can show that it has put any misdemeanor behind it and removed offending personnel.

(Additional reporting by Kirstin Ridley; Editing by David Goodman and Greg Mahlich)

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IBM, Twitter to partner on business data analytics

WASHINGTON (Reuters) – International Business Machines Corp (IBM.N) on Wednesday announced a partnership with Twitter (TWTR.N) to help shape business decisions using data collected from tweets worldwide.

IBM will help businesses predict trends in the marketplace and consumer sentiment about products and brands and will train 10,000 employees to consult businesses on the best use of Twitter data.

IBM chief executive Ginni Rometty has been trying to shift the 100-year-old company’s focus away from commoditized hardware to higher-value cloud and data analytics products.

In July, IBM announced a partnership with Apple Inc (AAPL.O) to offer iPads and iPhones loaded with applications geared toward enterprise clients.

“Here we are seeing an alignment of old tech and new tech companies. It is the second such deal that IBM has announced in the last couple months. They realize they don’t have all the answers and a lot of other companies have asset offerings that can be matched well,” said Scott Kessler, analyst at SP Capital IQ in New York.

In April, Twitter acquired social data provider Gnip to burrow into the 500 million tweets sent daily on its network. [ID:nL3N0N743S]

Enterprise clients will now be able to filter the data based on geography, public biographical information and the emotion expressed in the tweet.

The company previously allowed third-party companies such as Gnip, Datasift and Dataminr to buy access to tweets and re-sell that data to corporate clients.

Reuters’ parent company, Thomson Reuters (TRI.TO), also sells sentiment analysis of Twitter data, which monitors the emotional sentiment behind tweets toward topics and companies.

While other data analysis software for businesses exists, Twitter hopes the partnership with IBM’s established businesses will draw in customers.

IBM plans to offer Twitter data as part of its analytics services delivered through cloud computing, including cognitive computing.

Software developers will also be able to use Twitter data in applications they are building using IBM’s Bluemix and Watson Developer Cloud offering.

“Data is the phenomenon of our time,” said IBM’s Rometty.

“Twitter has created something extraordinary. When you bring this together with other kinds of information and leverage IBM’s innovations in analytics, Watson and cloud, business decision-making will never be the same,” she told an event announcing the launch.

“This is a huge milestone for Twitter,” said Twitter CEO Dick Costolo, adding:

“IBM brings a unique ability to integrate complex systems and data to help clients make better business decisions.”

IBM shares ended off 0.9 percent at $163.46 while Twitter shares dipped to close down 3.9 percent to $42.08.

(Additional reporting by Jennifer Saba in New York; Editing by James Dalgleish)

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Ally Financial profit jumps on fewer expected loan losses

NEW YORK (Reuters) – Ally Financial Inc (ALLY.N), the second largest U.S. auto lender, posted a third-quarter profit on Wednesday as it set aside less money to cover future car loan defaults.

The bank believes its loan losses will be lower in the future because U.S. unemployment has been falling fast, and Ally has in recent months attracted a greater number of borrowers with higher credit scores, finance chief Chris Halmy said on a conference call.

Even as Ally set aside $109 million for future loan defaults, 38 percent less than a year earlier, its delinquencies and loan losses rose: 2.28 percent of borrowers were behind on their payments, up from 2.10 percent in the same quarter last year, and the company’s loss rate rose to 0.93 percent from 0.82 percent.

“Our book is skewing a little bit towards the higher credit quality, which will bring losses from a percentage basis really down,” Halmy said.

Subprime borrowers account for around 9 percent of the company’s loan portfolio, and Chief Executive Michael Carpenter told Reuters in an interview that Ally has been investing in its collections operation in order to minimize losses on those car loans.

Ally made $11.8 billion in consumer auto loans in the third quarter, up 23 percent from a year earlier. The increase was driven by a record quarter in used car loans.

The bank’s net income applicable to common shareholders rose to $356 million, or 74 cents per share, from a loss of $109 million, or 27 cents per share, a year earlier.

Analysts had forecast that Ally would earn 41 cents a share in the quarter, according to consensus estimates compiled by Thomson Reuters I/B/E/S.

Revenues rose 14 percent to $1.3 billion from a year earlier and the company decreased its borrowing costs by 0.50 percentage points.

Ally shares were up one percent to $22.4.

Ally is one of the few big financial institutions that is still partially owned by the U.S. government. Taxpayers injected $17.2 billion into the lender during the financial crisis because of its mounting losses from subprime mortgages.

Carpenter said on the investor conference call that Ally has repaid all of that money plus another $1.1 billion in dividends and interest payments. He had said previously that he expected the Treasury to sell its remaining stake, which stood at around 11 percent at the end of the third quarter, before the end of 2014, but that forecast may have been too rosy.

“I had expected that we would be making more progress on that front than we have or they have,” Carpenter said.

(Reporting by Peter Rudegeair; Editing by Meredith Mazzilli and Andrew Hay)

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U.S. law firm says investigating AbbVie over collapsed Shire deal

LONDON (Reuters) – U.S. law firm Gardy Notis, a shareholder rights advocate, said on Wednesday it was investigating AbbVie (ABBV.N) and its officers over statements made in connection with the drugmaker’s failed move to buy Dublin-based Shire (SHP.L).

Gardy Notis said it was asking investors to get in touch if they had lost money after buying Shire American Depository Receipts between June 20 and Oct. 14.

AbbVie Chief Executive Richard Gonzalez told investors in July that expected tax benefits were “not the primary rationale” for the combination but, in reality, the law firm said tax was a critical factor.

The U.S. firm ditched the planned $55 billion takeover after the U.S. government announced a change in treatment of so-called tax inversions, sending Shire shares into a tailspin.

(Reporting by Ben Hirschler; Editing by Greg Mahlich)

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German prosecutors drop probe of ex-Morgan Stanley banker

STUTTGART Germany (Reuters) – German prosecutors dropped a two-year investigation into possible breach of trust by a former regional politician and an ex-Morgan Stanley (MS.N) banker over a state’s purchase of a stake worth 4.7 billion euros ($6 billion) in utility EnBW (EBKG.DE).

“It was not possible to demonstrate culpable behavior by the suspects,” Stuttgart public prosecutors’ office said in a statement on Wednesday.

In late 2010, the then premier of the state of Baden-Wuerttemberg, Stefan Mappus, hammered out the deal within weeks for the state to buy a 45 percent stake in EnBW from French energy company EDF (EDF.PA).

The head of Morgan Stanley’s German unit and one of the country’s top bankers, Dirk Notheis, advised Mappus on the acquisition. An independent adviser working for the prosecutors later said the state had overpaid by some 780 million euros.

German newspapers later published emails which they said were sent by Notheis to Mappus, in which Notheis casually referred to Chancellor Angela Merkel as “Mutti” – German for “mummy” – and sometimes appeared to be giving orders to Mappus.

The emails, which could not be independently verified by Reuters, unleashed a wave of criticism in Germany by appearing to highlight the cozy relationship between bankers and politicians at a time when many Germans were up in arms about the role banks played in the global financial crisis.

Both men denied any wrongdoing and said any allegations of breach of trust were baseless.

Stuttgart prosecutors said the case for the breach of trust accusation rested largely on differing assumptions about the value of the stake made by independent experts and could not form the basis for a prosecution.

(Reporting by Ilona Wissenbach; Writing by Jonathan Gould; Editing by Thomas Atkins and Pravin Char)

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