By Larry P. Vellequette. Crain News Service
DETROIT (Sept. 1, 2015) — General Motors Co. has flatly rejected the advances of its crosstown rival, but Fiat Chrysler Automobiles (FCA) CEO Sergio Marchionne is not going away — not by a long shot.
Mr. Marchionne said he has sweated the details and done the math and discovered there's far too much upside in a merger of FCA and GM to let a deal go undone, or at least unexplored.
In a blunt, two-hour interview with Automotive News in his downtown Detroit office, Mr. Marchionne said the numbers come out so good that his board of directors has no choice but to put pressure on GM to begin discussions now.
“It would be unconscionable not to force a partner,” he said.
That sounds like a hostile takeover bid is in the works.
“Not hostile,” said the FCA chief. “There are varying degrees of hugs. I can hug you nicely, I can hug you tightly, I can hug you like a bear, I can really hug you.
“Everything starts with physical contact. Then it can degrade, but it starts with physical contact.”
GM insiders, speaking on background, question Mr. Marchionne's assertions about synergies and suggest a merger with FCA is a bad idea all around.
“Why,” asked a high-ranking GM executive, “should [GM] bail out FCA?”
But Mr. Marchionne said the logic of the deal is “irrefutable.”
“We're not talking about marginal improvement in margins,” he said, “we're talking about cataclysmic changes in performance, just huge.”
Mr. Marchionne then added: “I've gone through product by product, plant by plant, area by area, and I've analyzed them all.
“I've obviously made some arbitrary assumptions about which architectures survive, which engines survive, and the only deal that offers them the same benefits as we potentially get...is us.”
The potential profits, he said, are exponentially larger than the current combined global earnings of GM and FCA.
Yet, Mr. Marchionne said GM isn't taking his phone calls. “I've offered to sit down with them and take them through the numbers,” said the Italian-Canadian CEO as he sipped an espresso and swiped through documents on his tablet, giving his visitors a cursory look at various charts and graphs he claims make his case.
“They won't listen. And that kind of abject refusal to engage,...the capital markets won't understand why you are rejecting the discussion.”
“You may reject the deal but you can't reject the discussion. If you're refusing to talk to me, and you have seen nothing, you either think you're above it all, or you think the capital markets are full of schmucks that owe you something.”
‘A better deal'
Mr. Marchionne said he doesn't lack for potential partners and he could sell or merge FCA as it stands today. “There have been responses of people who have shown interest in discussing,” he said. “Are they the people I wanted to get the response from? The answer is probably not.
“There are people who are interested in doing deals. I'm not interested in doing deals with them...because there's a better deal.”
Without specifying how he arrived at the figures, Mr. Marchionne cited a staggering combined EBITDA (earnings before interest, taxes, depreciation and amortization) figure that he said would result from the merger of FCA and GM.
“Look, the combined entity can make $30 billion a year in cash. Thirty. Just think about that [expletive] number,” he said. “In steady-state environments, it'll make me $28 billion to $30 billion,” at a seasonally adjusted annual selling rate of 17 million.
Arndt Ellinghorst, head of global automotive research at Evercore ISI, said the target is realistic.
“A combined GM-FCA will generate almost $25 billion in EBITDA this year,” Mr. Ellinghorst wrote in an email. “If you assume some synergies and peak U.S. cycle market conditions then, yes, they could get to 30 billion in EBITDA.”
On background, a GM official said company executives have not seen Mr. Marchionne's analysis of what a combined company would look like. But he expressed doubts about how Mr. Marchionne could hit his profit projection while keeping a promise made to dealers last week in Las Vegas not to impact retailers or cut manufacturing jobs.
Asked directly, a GM spokesman wouldn't call Mr. Marchionne's analysis wrong but said GM officials believe the company and its shareholders are better off on their own.