Fiat Chrysler growth plan challenged by possible merger delay

Thu Aug 14, 2014 1:59pm EDT
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By Agnieszka Flak

MILAN (Reuters) - Sergio Marchionne has shown he is determined to let nothing stand in the way of Fiat's merger with Chrysler, but a share price slide may yet force the CEO to hit the brakes on plans to turn the world's No. 7 carmaker into a top player.

Fiat bought out Chrysler at the start of 2014 and both operate as one firm. Marchionne now plans to merge them into a single legal entity Fiat Chrysler Automobiles (FCA) to boost the firm's global clout and pave the way for a U.S. listing he says is key to help fund a 48-billion euro ($64 billion) growth plan.

However, his plan looks to be on shaky ground. The merger cannot go ahead if too many shareholders who disagree with it take up his formal offer to buy their stock at a set price - a legal requirement triggered by Fiat moving its registered offices from Italy to the Netherlands - and recent events make that a possibility.

On top of concerns that Marchionne may be overreaching with his investment plan - to grow net profit five-fold and sales by 60 percent by 2018 - Fiat's recent poor results and weak markets prompted a slide in its shares to their lowest this year and below the 7.727 euro price that Marchionne is offering investors who want to depart when the merger occurs.

Should investors holding around 9 percent of eligible shares decide to sell, that would breach a 500 million-euro payout limit that Fiat has set - and throw the merger into doubt. Fiat would have an opportunity to place the tendered stock to other shareholders and later to the public at the same exit price, an unlikely prospect while the market value remains lower.

"With the share price where it is today, a delay is a possibility," said Andrea Giuricin, a transport analyst at Milan's Bicocca university. "If there is a delay, it would impact Fiat's plans to lure foreign investors and ease its access to cash. Marchionne's attempts to convince the market to the contrary shows he is getting a bit nervous."

Fiat said itself in a July SEC filing that a delay could "negatively affect Fiat's business plans and operations". But as the fall in Fiat shares heightened that risk, so its CEO has downplayed it.

"I'm absolutely unfazed by all this," Marchionne said last week. "Even if the merger were not to happen as described... none of our plans presented in May are going to be impacted."   Continued...

Fiat Chrysler Chief Executive Sergio Marchionne gives opening remarks during the FCA Investors Day at Chrysler World Headquarters in Auburn Hills, Michigan May 6, 2014.  REUTERS/Rebecca Cook