Fiat investors likely to approve Chrysler merger

By Gilles Castonguay, Crain News Service

MILAN (July 31, 2014) — Fiat S.p.A.'s shareholders will likely approve the auto maker's merger with Chrysler Group L.L.C. when they meet in Italy for the last time on Friday, Aug. 1.

Industry watchers expect Fiat to win the two-thirds majority vote needed for a merger that will create the world's seventh largest auto maker because its biggest shareholder, Exor, the holding company of Fiat's founding family, owns an influential 30.04 percent stake.

A positive vote at the special shareholders meeting called by Fiat “is pretty much a done deal,” said a Milan-based industry analyst.

Proxy advisors, whose recommendations are usually followed by international investors, have issued different advice to shareholders. ISS and Frontis Governance recommend a “no” vote because Exor's voting power in the merged company could rise to as much as 46 percent, reducing minority shareholder rights. However, Glass Lewis said Fiat investors should vote in favor because the merger's benefits outweigh the concerns.

Failure to secure approval of the merger could complicate Fiat Chrysler's plans to list its stock in the U.S. and secure funds for its five-year business plan.

Fiat completed its buyout of Chrysler earlier this year and CEO Sergio Marchionne said on July 23 he was confident the merger would be approved. The merged auto maker will be registered in the Netherlands and called Fiat Chrysler Automobiles NV, or FCA. (Its U.S. entity will be Fiat Chrysler Automobiles.) The company aims to list its shares in New York by October to gain better access to financial markets while maintaining a secondary listing in Milan. FCA would have its tax domicile in London to benefit from lower taxes on dividend payments to its shareholders.

Friday's shareholder meeting will be historic because it will be the last one that they will hold in Turin, Fiat's home since it was founded more than a century ago. Future meetings will held in Amsterdam.

New models

Fiat's workers hope Mr. Marchionne will tell shareholders which new models will be built at the auto maker's underused Mirafiori plant in Turin, its oldest and largest factory.

Fiat has said it will invest 1 billion euros in the plant to build Maserati's first SUV, the Levante, and other unnamed products. The plant is the only one of Fiat's six in Italy whose role in Mr. Marchionne's latest business plan has yet been fully disclosed.

Automotive News Europe sources say Mirafiori has been picked to build an Alfa Romeo variant of the Levante and the successor to the Maserati GranTurismo coupe.

“We expect that Mr. Marchionne will make his position clear on the matter,” said Ferdinando Uliano of the FIM Cisl union.

Ahead of the vote, Exor and Fiat denied reports that Exor is talking with Volkswagen A.G. about selling its Fiat shares to the German auto maker. Fiat and PSA/Peugeot-Citroen also denied a Financial Times report that the companies were discussing the idea of a merger.

Italy commitment

Mr. Marchionne and John Elkann, Fiat's chairman and Exor's CEO, took pains to ease persistent fears among some Italians about their commitment to the country last week when they opened a center in Turin that will provide services such as administration and accounting for both FCA and sister company CNH Industrial. “This confirms the importance Turin has and will have for Fiat Chrysler,” Mr. Elkann said.

Should they approve the merger proposal, shareholders will receive one share in FCA for every one held in Fiat. They will also get a special voting share for every one held in Fiat if they remain shareholders for the next three years.

Fiat plans to set aside a maximum of 500 million euros to buy out shareholders who are not interested in the new shares.

Mr. Marchionne said the merger would be at risk if Fiat had to pay out more than the allotted 500 million. “If the number is crossed for whatever reason, the merger would be ineffective,” he said on a conference call on July 30. “We would need to do the process all over again.”

Fiat has said the offer of a special voting share would ensure a stable shareholder base during FCA's first years of existence.

Mr. Marchionne's business plan for FCA aims to boost annual global vehicle sales to 7 million by 2018 from 4.4 million last year and to increase earnings before interest and taxes to between 8.7 billion euros and 9.8 billion euros, up from 3.5 billion euros last year.

Reporter Luca Ciferri contributed to this report, which appeared on the website of Automotive News, a Detroit-based sister publication of Tire Business.