Six reasons show Fiat Chrysler making play for GM – USA TODAY
TURIN, ITALY — Many in the automotive industry scoffed when Fiat Chrysler Automobiles CEO Sergio Marchionne unveiled his “confessions of a capital junkie” on April 30.
The provocative presentation was designed to spark conversation about the need for mergers and acquisitions in the global automotive industry, but few thought any automaker would be spurred to take action based on Marchionne’s assessment.
The move also was viewed by many as Marchionne putting a for-sale sign on FCA — an odd move after all the effort that has gone into combining Fiat and Chrysler since 2009.
But there is mounting evidence that Marchionne should be taken seriously, especially when it comes to a possible deal with General Motors.
Here are six reasons a potential merger with GM — as ambitious and far-fetched as it might seem — should not be ignored.
1. The companies are taking it seriously. GM and FCA have hired financial advisers to evaluate a potential deal, according to a report from Reuters on Wednesday. GM has hired Goldman Sachs, and FCA has hired UBS, according to the report.
GM CEO Mary Barra has publicly and privately rejected Marchionne’s overtures.
“In every deal Marchionne has ever closed, the banking industry always has played a key role,” said Bernardo Bertoldi, a professor of business at the University of Turin.
2. Talk of a hostile takeover of GM. Max Warburton, a respected analyst who has watched Marchionne closely for years, issued a research note last week raising the possibility of Marchionne launching a hostile takeover bid for GM.
Warburton breaks it down this way: “The mechanics of such a bid look ambitious – in fact, they are without precedent. Selling it to shareholders, unions and anti-trust authorities would be hugely complex. But stranger things have happened.”
Even though FCA is a smaller company and is carrying a lot of debt, Warburton said, “We believe it’s necessary to start taking this idea more seriously.”
3. Marchionne’s e-mail. Marchionne sent Barra an e-mail earlier this year in which he presented the case for the two automakers combining resources. Barra rejected that e-mail.
4. Greenlight Capital’s purchase of a lot of stock. David Einhorn’s Greenlight Capital bought nearly 9.5 million shares over the first three months of this year, making it one of GM’s largest shareholders.
A spokesperson for Einhorn declined to comment on the reason behind Greenlight’s decision to purchase more GM shares. Einhorn is among Wall Street’s most influential hedge fund managers.
5. Exor’s hostile bid for PartnerRe. Who is Exor and what does it have to do with FCA? Well, Exor is an investment fund based in Turin, Italy, with 13 billion euro (about $14.6 billion) in assets. It is controlled by the Agnelli family and its Chairman and CEO John Elkann — the same Elkann who is chairman of FCA.
Exor has launched a hostile takeover bid for PartnerRe, one of the world’s largest reinsurance companies, that includes a lawsuit and heated shareholder battles.
Exor’s bid illustrates that quiet, seemingly mild-mannered Elkann has no qualms about becoming an activist investor.
Marchionne is vice chairman of Exor.
6. Marchionne is right, to an extent, about consolidation. Marchionne argues that the automotive industry faces billions of expenditures in product development in the coming years to adapt to tougher CAFE standards, electric vehicle development and the development of autonomous vehicle technology.
FCA is the most truck-heavy automaker in the U.S. and is close to last among major automakers for sales of electric and hybrid cars. Other automakers are farther along on these issues, which might mean Marchionne is desperate to find a way to catch up quickly.