Chicago-based construction and farm equipment maker CNH Global NV (ADR) (NYSE:CNH) rejected the merger terms proposed by Italy’s Fiat Industrial on Monday. A special committee for CNH, whose approval is necessary for the merger, said that Fiat Industrial SpA (BIT:FI)’s proposal is inadequate, and it would not be in the best interest of CNH Global NV (ADR) (NYSE:CNH) shareholders. It is a big setback for Fiat Industrial, which already owns 88 percent of CNH shares. Fiat was planning for a U.S. listing.


Fiat consider the merger a crucial step that will create a single, U.S. listed firm, saving approximately $150 million in financing costs every year. Thus, the newly formed company would be able to compete more effectively with the rivals like Caterpillar. Fiat’s chairman Sergio Marchionne said his company remains committed to the financial and strategic benefits of the merger.

Fiat Industrial, which was spun off Italian carmaker Fiat SpA, earlier this year, offered to give CNH shareholders 3.9 shares of Fiat Industrial for each share of CNH Global NV (ADR) (NYSE:CNH). Fiat Industrial is the world’s third largest maker of capital goods, such as trucks and commercial vehicles, behind Caterpillar and Volvo.

CNH shareholders rejected the bid because they think they are being sold short. CNH stocks are trading far too much lower than the actual value, and Fiat initially denied paying the premium. When Reuters contacted some of the CNH shareholders, they said they like the idea of the merger, but dislike the price Fiat Industrial is offering.

However, now Fiat Industrial SpA (BIT:FI) is planning to sweeten the offer to buy out the remaining 12 percent shares in CNH Global that it doesn’t own yet, according to Wall Street Journal. Fiat Industrial has asked its advisers to meet the special committee of CNH to explore the possibility of an agreement on revised terms. Fiat said the terms would still be broadly consistent with its aim to drive growth and broaden the range of international investors.

Fiat Industrial SpA (BIT:FI) is also working with the troubled Italian government to boost exports. The shares of Fiat Industrial declined 0.96 percent to 7.76 euros in Milan trading. Bank of America holds Neutral rating for Fiat Industrial stock.