Shanghai Electric among Chinese firms targeting Fiat's Comau: sources

October 6, 2016 9:26 AM EDT

A woman walks past a logo of Fiat Chrysler Automobiles (FCA) in Turin March 31, 2014. REUTERS/Giorgio Perottino

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By Pamela Barbaglia, Agnieszka Flak and Arno Schuetze

LONDON/MILAN/FRANKFURT (Reuters) - Chinese firms including Shanghai Electric have approached Fiat Chrysler Automobiles (FCA) to express an interest in buying its Comau robotics business, sources familiar with the matter told Reuters.

Any deal would follow a wave of European acquisitions by Chinese firms as they seek global scale and could help FCA pay down debt as well as fund an expensive investment plan.

Chinese conglomerate Sinomach and Shanghai Institute of Mechanical and Electrical Engineering (Simee) have also approached FCA over a possible bid for Comau, hoping to persuade FCA boss Sergio Marchionne to sell the Turin-based specialist in welding robots, one of the sources said.

But FCA is currently focused on talks over a potential sale or partnership for its Magneti Marelli auto parts maker with South Korea's Samsung Electronics and is in no rush to consider options for Comau, a profitable unit with revenues of just under 2 billion euros ($2.3 billion), the sources added.

FCA declined to comment, while Shanghai Electric, Sinomach and Simee were not immediately available to comment due to a national holiday in China.

The world's seventh-largest carmaker has one of the highest debt piles in the industry and needs cash to fund an ambitious 48 billion euro investment plan, especially after Marchionne's proposal to tie up with U.S. rival General Motors was repeatedly rebuffed.

FCA chairman John Elkann said on Sept. 3 that FCA was in talks with several parties, including Samsung, and reviewing options for Magneti Marelli.

A deal could be worth up to 4 billion euros depending whether Samsung buys all or part of Magneti Marelli, which makes components for lighting, engines, electronics, suspension and exhausts, among other items, the sources said.

If successful, the sale of Magneti Marelli could pave the way to other disposals within FCA's auto parts division, which also includes Comau and castings firm Teksid, the sources said.

Discussions between Samsung and FCA have been going on since the start of the summer but the two parties remain far from an agreement, the sources said. In fact, they have yet to hire banks to help negotiate the terms of a deal, they added.

Samsung is only interested in certain parts of Magneti Marelli and the two companies may initially set up a partnership that could later evolve into a sale, they said.

A Samsung spokesman declined to comment.

Comau is Fiat's second biggest components business, with adjusted operating profit of 72 million euros in 2015.

The unit, which employs 12,600 people in 17 countries, has also drawn interest from private equity funds, the sources said, cautioning no deal was certain.

Comau, led by chief executive Mauro Fenzi, supplies process automation products to several FCA brands, including Chrysler, and its operations are intertwined with the rest of the group, making it hard to hive it off, the sources said.

A partnership with one of the Chinese suitors is seen as a better option for FCA, one source said, although the Chinese bidders have mainly shown interest in a full acquisition.


Meanwhile, some private equity funds including U.S. buyout firm Marlin Equity Partners have set their sights on Teksid, the smallest of FCA's auto parts units with 2015 revenues of 631 million euros and an adjusted operating profit of 2 million euros, one of the sources said.

But FCA is keeping buyout funds at arm's lengths, the sources said, and there are no talks underway.

A spokesman at Marlin Equity Partners was not immediately available for comment.

A sale of any of the units could help FCA pay off some debt at a time when it is highly exposed to a peaking U.S. auto market and its five-year investment plan is plagued by product delays.

Chinese firms and other international automotive players are better positioned to buy FCA's auto parts units than private equity funds since Marchionne is wary of selling assets to financial investors and recently rebuffed bids from heavyweight funds for Magneti Marelli, the sources said.

Aviation Industry of China [SASADY.UL] (Avic) could also make a move for FCA's units, particularly Comau, the sources said, as it seeks access to proprietary technology. Avic representatives could not be immediately reached for comment.

Chinese firms have shown growing interest in European automotive assets as they look to boost their global presence, with Chinese household appliances company Midea Group recently buying industrial robot maker Kuka.

China's voracious appetite for overseas acquisitions has propelled Asia to the forefront of global deal-making for the first time, with investment bankers hoping Chinese buyers will continue to support an otherwise slowing M&A market.

Last year, state-backed ChemChina bought a majority of Italy's Pirelli, the world's fifth-largest tyre maker. It then bought Swiss seeds and pesticides group Syngenta for $43 billion in February, the largest Chinese deal this year.

(Addintional reporting by Vincent Lee, Norihiko Shirouzu and Sue-Lin Wong; Editing by Mark Potter)

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