Fiat Chrysler Moves to NYSE in Challenge to Detroit Two – Bloomberg

Posted: Monday, October 13, 2014

Fiat Chrysler Automobiles NV (FCAU)’s debut
on the New York Stock Exchange gives more U.S. investors the
chance to tap into the growing global market for cars and
trucks, while also taking a chance on a debt-burdened automaker.

The shares will move to the NYSE today from the Milan stock
exchange
and trade under the FCAU ticker after closing on Oct.
10 at the equivalent of $8.76 a share. The new Fiat Chrysler,
with ambitions to increase vehicles sales by almost 60 percent,
will be legally registered in the Netherlands with a London
headquarters.

The combination of Auburn Hills, Michigan-based Chrysler
Group LLC with Turin, Italy-based Fiat SpA (F) forms the seventh-largest global automaker. It lacks a large presence in China and
its debt load could impede growth by limiting further merger
options. And yet Fiat Chrysler ranks No. 4 in the lucrative U.S.
market, where it has increased sales for 4 1/2 years.

The company offers exotic sports cars by Ferrari and
Maserati, efficient Fiats, and comfortable minivans. It also has
Ram pickups and the iconic Jeep sport-utility vehicle brand to
line up against U.S. rivals General Motors Co. (GM) and Ford Motor
Co.

“As a car company, as a global producer of vehicles, I
think we’re fully equivalent to the other Detroit two,” Chief
Executive Officer Sergio Marchionne told reporters Oct. 10 in
metro Detroit. “And the objective in coming to New York as a
stock listing is really to get us evaluated and benchmarked
against them.”




Photographer: Andrew Harrer/Bloomberg

Fiat Chrysler Automobiles NV Chief Executive Officer Sergio Marchionne said, “As a car company, as a global producer of vehicles, I think we’re fully equivalent to the other Detroit two.” Close

Fiat Chrysler Automobiles NV Chief Executive Officer Sergio Marchionne said, “As a car… Read More

Open

Photographer: Andrew Harrer/Bloomberg

Fiat Chrysler Automobiles NV Chief Executive Officer Sergio Marchionne said, “As a car company, as a global producer of vehicles, I think we’re fully equivalent to the other Detroit two.”

Increased Visibility

Being traded in New York increases Fiat Chrysler’s exposure
to the financial community, said Joe Phillippi, president of
AutoTrends Consulting. It gives U.S.-focused investors more
opportunity to buy into the automaker Lee Iacocca once saved and
that was salvaged out of bankruptcy in 2009 by Marchionne and
Fiat.

“Trading in Milan dramatically limits interest. Trading in
New York, in fact, opens up the company to retail investors, and
probably to certain types of institutional investors, too,”
Phillippi said by telephone. “A lot of people remember the
Chrysler of the late ’80s and into the ’90s, when the stock did
extraordinarily well on its own.”

Marchionne said last month that he sees the potential to
create a new No. 1 in the auto industry. The capital required to
develop and produce new vehicles will necessitate consolidation,
he said.

Fiat Chrysler “will be ready to participate” in industry
consolidation that might take place over the next five to 10
years “if it makes sense,” said Chairman John Elkann, 38,
scion of the company’s founding Agnelli family. He hired
Marchionne in 2004, when the Turin-based manufacturer was near
bankruptcy.

Little Flexibility

For now, with Fiat Chrysler carrying $12.3 billion in
industrial debt, major combinations aren’t realistic, said
Richard Hilgert, an analyst with Morningstar Inc. (MORN) in Chicago.

“There’s no funding available to make purchases for the
time being and the debt acts like a poison pill to any
prospective buyers,” he said.

Fiat Chrysler combined is better able to compete with
heavyweights such as GM, Volkswagen AG and Toyota Motor Corp. (7203)
Marchionne said last month that the typical pre-listing road
show for investors will take place later this year.

The automaker’s new board will meet in late October and
evaluate its capital structure, including weighing the
possibility of issuing new stock, Marchionne has said. The
company filed Oct. 10 for a possible sale of shares held in
treasury.

Ambitious Plans

Marchionne has ambitious plans for the combined company,
aiming to increase net income fivefold to about $6.3 billion (5
billion euros) in 2018, backed by a $61 billion investment
program that calls for more upscale vehicles and doubling
worldwide Jeep sales by pushing the off-road brand beyond its
American roots.

He sees Fiat Chrysler climbing a spot to sixth place in the
global ranking by expanding sales. Fiat Chrysler has said it
will sell 7 million cars in 2018, compared with last year’s 4.4
million. Ford is currently sixth-largest, with 6.3 million cars
and trucks sold last year. CEO Mark Fields set a goal of
increasing vehicle sales by more than 3 million by 2020.

Whether Fiat Chrysler can crack the top six, it’s a much
stronger company now than either Fiat or Chrysler Group would be
without teaming up.

Improved Quality

“Chrysler and Fiat together are very different than they
were,” David Cole, chairman emeritus of the Center for
Automotive Research
in Ann Arbor, Michigan, said in an
interview. “Just from a Chrysler perspective, the company has
had very strong sales in the U.S. in recent months. A few years
back, the quality of the product was suspect. But Chrysler has
dramatically improved its products across the board.”

Investors are skeptical of Marchionne’s lofty targets. The
shares fell 12 percent the day after Fiat Chrysler executives
laid out what Marchionne said will be his last five-year plan.
Of the 32 analysts who’ve followed the stock while it traded in
Milan, 11 recommend buying it.

Among analysts’ concerns are the ability to expand Jeep in
Europe and Asia and whether Alfa Romeo can become a luxury auto
brand able to compete with top German makes: Mercedes, BMW and
Audi.

‘Starting Its Life’

While Hilgert says the shares are under-valued and should
trade for $18, he cautioned that the stock isn’t for everyone.

“Only investors willing to accept the risk of a turnaround
company with a highly leveraged balance sheet, operating in an
industry that is cyclical, capital-intense and highly
competitive should consider owning the shares,” Hilgert wrote
in a note to investors Oct. 9.

Marchionne, who saved Fiat 10 years ago, then Chrysler five
years ago, said he’s looking forward to the growth that the
combined company can achieve in what he has said will be his
last five-year plan.

“FCA is starting its life on Monday,” he said Oct. 10.
“Its future is just about ready to be written. Let us write
it.”

To contact the reporters on this story:
Mark Clothier in Southfield, Michigan at
mclothier@bloomberg.net;
Madeline O’Leary in New York at
moleary29@bloomberg.net

To contact the editors responsible for this story:
Jamie Butters at
jbutters@bloomberg.net
Kevin Miller

Comments

Write a Reply or Comment:

Your email address will not be published.*