Fiat-Chrysler merger path soon clarified
TURIN, Italy – THE CEO of Fiat, the Italian carmaker that controls Chrysler, said yestersday he expects to have “clarity” by the end of the year on how it will achieve a full merger with the US auto group.
“A merger with Chrysler is inevitable,” Sergio Marchionne said, adding that the deal could be completed — either by a straight buyout of the minority shareholder or by a public share offering — by as early as his 10th anniversary as Fiat CEO in mid-2014.
Marchionne has jointly managed the two companies since buying a 20 per cent stake in 2009. Fiat has since built up its holding in the US company to 58.5 per cent. However, his ambitions to fully merge the two companies have been stalled by a dispute between Chrysler’s minority shareholder, the autoworkers union pension health trust, which holds the remaining 41.5 per cent of shares.
The dispute centers on the value of the remaining stake in Chrysler. A court in Delaware has been asked by Fiat to put a value on a deal to buy a 3.3 per cent stake in Chrysler from the trust. That ruling, which is expected in June, will form the basis for determining the value of further share deals between Fiat and the trust, amounting to a further 10 per cent of the company. Once that process is complete, Fiat can then decide whether to buy the remaining minority share outright or seek an initial public offering of Chrysler to buy the pension trust out.
”I hope that by the end of the year we have more clarity on how to achieve it,” Marchionne said, adding that there it could be completed by his 10th anniversary as Fiat CEO on June 1, 2014,
“If I were to bet, I think there is a probability of more than 50 per cent that it will be done by then.”
Marchionne added that Fiat has more than enough cash to buy the outstanding stake — thanks, in part to Fiat’s decision not to pay a dividend this year.
”I don’t need help from financial institutions” Marchionne said.
He also said that, in the medium or long term, he might consider selling assets to ensure that the merged company is on a strong financial footing. However. Marchionne stressed that the sports car company Ferrari, which is owned by Fiat, would not be among the possible disposals.
Marchionne also said that Fiat may trim its earnings targets this month as the European market is expected to decline for a sixth straight year.
European economies are suffering as governments have cut spending and raised taxes to lower debt. That has caused a big drop in spending, particularly on big-ticket items like cars, with the Italian market dipping to half of 2007 sales and levels not seen since the 1970s.
Another drop in sales in Europe, however moderate, ”would be a worse result than the forecast that we indicated in January as the basis for the 2013 targets,” Marchionne said.
The current forecast is for profits of between (euro) 1.2 billion and (euro) 1.5 billion ($1.5 million-$1.9 million) in 2013 on revenues between (euro) 88 billion and (euro) 92 billion. Marchionne said the group would update the forecasts by geographical region when they release first-quarter earnings later this month.
The Fiat CEO said he expects vehicle deliveries this year for Fiat and Chrysler combined to reach 4.3 million to 4.5 million — up from 4.2 million last year, which places the partnership as the world’s seventh-largest automaker.