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Volvo and Fiat confirm talks
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January 11, 1999: 6:57 a.m. ET
Auto groups admit they are negotiating, although others remain in the frame
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LONDON (CNNfn) - In a classic case of "buy on the rumor, sell on the news", Volvo and Fiat announced they were in merger talks Monday, but stock markets responded with a shrug.
Bid talk in the European auto sector has reached fever pitch in recent weeks. Speculation has centered on Sweden's Volvo, with companies such as Ford (F) often put in the frame as possible predators.
Volvo shares eased 1 percent to 228 crowns in Stockholm after the talks with Fiat were confirmed. In Milan Fiat stock rose only a fraction to 3.33 euros.
Both companies stressed that they were also talking with other players in the sector. Still, analysts said a Volvo/Fiat deal was a logical move.
"Volvo and Fiat together makes sense, because the car and truck divisions would fit together," said a London-based auto analyst, who didn't wish to be named.
Stock watchers pointed out that the Swedish company's expertise in larger executive-style cars would complement Fiat's range of predominantly smaller cars. Analysts also claimed the two groups would be a good geographic fit, with Fiat's strong emerging markets presence combining with Volvo's position in northern Europe. Both groups have substantial truck businesses.
Speculation of mergers in the European auto sector has been rife since Daimler merged with Chrysler, and has fueled a boom in share prices. Volvo stock has surged almost 50 percent in the past three months. Fiat stock has bounced 60 percent over the same period.
Earlier this month Volvo engaged investment bank J.P. Morgan to explore strategic options for its car unit.
Any deal is likely to take some time to put together, and there remains the possibility of the whole thing coming apart. In the early 1990's Volvo agreed to a merger with France's Renault (PRNO), only for the deal to fall foul due to investor skepticism.
Fiat had its own misadventure in Scandinavia in 1989, when a deal to buy part of Saab fell through, and General Motors (GM) ended up taking a half share in the Swedish company.
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