(Adds financial source saying Merrill Lynch is the buyer of stake, details, background)
By Jane Barrett
MILAN, Dec 20 (Reuters) - Fiat said on Friday it had sold its almost 6 percent stake in partner General Motors Corp. for about $1.16 billion in a move that will help it meet strict debt-slashing targets agreed with its creditor banks.
Fiat said it had sold the stake to an unidentified investment bank. A financial source said the buyer was Merrill Lynch , which is also advising the Italian industrial group on its restructuring.
A Merrill Lynch spokesman in New York declined to comment.
The two car makers said the sale would not affect an option that allows Fiat to sell its 80 percent stake in cash-bleeding car unit Fiat Auto to GM from 2004 -- a rip cord analysts say is Fiat's best way to get back to profit.
In a statement, Fiat said the sale of its 32.05 million GM shares, or almost six percent of GM, would substantially improve its net debt, which the car maker has pledged to cut to 3.6 billion euros by early 2003 from 5.8 billion euros at the end of September.
In October, Fiat forecast cash flow and planned sell-offs would drive net debt down to 4.4 billion euros by the end of December. Knocking another 1.16 billion euros off its net borrowing would allow Fiat to duck comfortably below the 3.6 billion-euro ceiling.
Fiat sold 20 percent of Fiat Auto to GM for $2.4 billion in stock in 2000 when GM was trading at almost $78 per share -- about double Friday's closing price of $37.06.
"It should have a very negligible effect on the trading of GM stock," GM spokeswoman Toni Simonetti said.
Earlier this year Fiat used its shares in the world's top car maker to back a five-year bond. On Friday, it said that under the terms of its agreement with the investment bank, the stake sale would not affect bondholders.
GM wrote down most of its Fiat Auto stake in October as the company that was once Europe's top automaker struggles to pull out of deep losses, sinking Fiat's share price by about 50 percent so far this year.
As part of a restructuring, Fiat has laid off about 15,000 workers around the world in the last 12 months, with another 2,000 chops to go in June next year when Fiat brings down the curtain on its boxy Panda car.
Fiat says the job cuts and cost savings from joint ventures with GM should help it save one billion euros next year. Fiat plans to invest 2.6 billion euros a year in new models until 2005.
A group of creditor banks threw Fiat a three billion-euro lifeline in May, demanding the Turin-based company get its net debt down to 3.6 billion euros by the time the board approves 2002 results early next year.
If Fiat fails to meet its debt target or loses its investment grade rating, the creditor banks can change their loan into equity, worth about one third of the company, which would give them equal control to the founding Agnelli family.
Fiat has been chopping away at the net debt by selling parts of its investments in energy holding Italenergia, sports car group Ferrari and the aluminium unit of castings group Teksid.
On Thursday, Fiat said it had also agreed to sell a majority stake in its customer financing arm Fidis to four top creditor banks Capitalia , Sanpaolo IMI , UniCredito and IntesaBci .
A spokesman said details of the sale would be announced in the New Year. Financial sources have said the Fidis deal should knock about six billion euros off Fiat's gross debt. (Additional reporting by Mike Ellis in Detroit)