Home » Business » Autotalk Special
Fiat Chrysler’s global growth plan challenged by possible merger delay
Print Edition
SERGIO Marchionne has shown he is determined to let nothing stand in the way of Fiat’s merger with Chrysler, but a share price slide may yet force the CEO to hit the brakes on plans to turn the world’s No. 7 carmaker into a top player.
Fiat bought out Chrysler at the start of 2014 and both operate as one firm. Marchionne now plans to merge them into a single legal entity Fiat Chrysler Automobiles (FCA) to boost the firm’s global clout and pave the way for a US listing he says is key to help fund a 48-billion euro (US$64 billion) growth plan.
However, his plan looks to be on shaky ground. The merger cannot go ahead if too many shareholders who disagree with it take up his formal offer to buy their stock at a set price — a legal requirement triggered by Fiat moving its registered offices from Italy to the Netherlands — and recent events make that a possibility.
On top of concerns that Marchionne may be overreaching with his investment plan — to grow net profit five-fold and sales by 60 percent by 2018 — Fiat's recent poor results and weak markets prompted a slide in its shares to their lowest this year and below the 7.727 euro price that Marchionne is offering investors who want to depart when the merger occurs.
Should investors holding around 9 percent of eligible shares decide to sell, that would breach a 500 million-euro payout limit that Fiat has set — and throw the merger into doubt. Fiat would have an opportunity to place the tendered stock to other shareholders and later to the public at the same exit price, an unlikely prospect while the market value remains lower.
“With the share price where it is today, a delay is a possibility,” said Andrea Giuricin, a transport analyst at University of Milano-Bicocca. “If there is a delay, it would impact Fiat’s plans to lure foreign investors and ease its access to cash. Marchionne’s attempts to convince the market to the contrary shows he is getting a bit nervous.”
Fiat said itself in a July SEC filing that a delay could “negatively affect Fiat’s business plans and operations.” But as the fall in Fiat shares heightened that risk, so its CEO has downplayed it.
“I’m absolutely unfazed by all this,” Marchionne said this month. “Even if the merger were not to happen as described... none of our plans presented in May are going to be impacted.”
Bumps and worries
On the approach to the merger Marchionne hit bumps in the road he did not expect: His core North American market is weakening, Italy slid back to recession in the second quarter, and conflicts from the Middle East to Russia have dampened investors’ appetite for risk in equity markets.
In addition two proxy advisory firms, offering independent voting recommendations as a service to institutional investors, recommended a vote against the merger on the grounds that it decreased investor rights and tightened the grip on the company by the Agnelli family through a loyalty scheme put in place as part of the merger to reward long-term investors.
The merger was approved by 84 percent of shares represented at the meeting, but some institutional investors voted against. Some investors expressed concerns over Fiat moving its registered offices away from Italy, its home for the past 115 years, and raised worries that the share price would suffer once the stock’s primary listing moved to New York.
In the end the hold-up may simply be down to a technicality. Against the price Fiat set to pay off dissenting investors — the 7.727 euros a share is based on the stock’s six-month average — its current price of around 7.1 euros makes that offer still a generous one.
Eligible investors have until August 20 to tell Fiat whether they plan to cash in on their exit rights. The carmaker will announce the number of shares for which exit rights have been exercised in the week of September 1.
If a critical mass of investors breaches the cap Marchionne has set, he has said he will start the merger process again — effectively meaning a delay of several months. However, with the stock’s recent fall, a new merger attempt would lead to a lower exit price, making it easier to keep the outlay below the payout cap the second time around.
Marchionne has warned that investors would be taking “an enormous risk” by exercising the exit rights, because their shares could be locked up for as long as six months before the outcome is known — and then left in their possession if the cap is breached.
Marchionne is counting on the merger and the US listing to help pay for a relaunch of its Alfa Romeo and Maserati brands, export Jeeps globally, and take all three to fast growing Asian markets, where the group is currently weak.
Ambitious plans
That investment plan’s targets and timelines look ambitious to even the most optimistic of analysts, most of whom say capital raising of some sort is needed to make it affordable.
Fiat had 18.5 billion euros of cash at end-June, but nearly 32 billion in debt. Its financing costs are high and margins are weakening — operating margin stood at 2.7 percent in the first half of this year.
It is also valued below its European peers, trading at 2.6 times enterprise value to forecast core earnings compared to the median of 4.3 times for the sector in Europe.
Fiat has ruled out asset sales and a share issue for now, but may go for a mandatory convertible bond. However, Marchionne said any decision on financing would only be taken after FCA was created and with a delay, this would be pushed out as well.
A delay to the planned October New York listing could also complicate an already challenging US offensive. Marchionne believes a Wall Street ticker is necessary to set up Fiat as a player able to rival Germany’s Volkswagen and BMW, but after a lukewarm response to last year’s US debut of sister company CNH Industrial, he expects it will take time for Fiat to lure US investors.
- About Us
- |
- Terms of Use
- |
-
RSS - |
- Privacy Policy
- |
- Contact Us
- |
- Shanghai Call Center: 962288
- |
- Tip-off hotline: 52920043
- 沪ICP证：沪ICP备05050403号-1
- |
- 互联网新闻信息服务许可证：31120180004
- |
- 网络视听许可证：0909346
- |
- 广播电视节目制作许可证：沪字第354号
- |
- 增值电信业务经营许可证：沪B2-20120012
Copyright © 1999- Shanghai Daily. All rights reserved.Preferably viewed with Internet Explorer 8 or newer browsers.
