Fiat-Chrysler merger path to clarify
Apr. 09, 2013
TURIN, Italy (AP) — The CEO of Fiat, the Italian carmaker that controls Chrysler, said Tuesday he expects to have "clarity" by the end of the year on how it will achieve a full merger with the U.S. 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 percent stake in 2009. Fiat has since built up its holding in the U.S. company to 58.5 percent. 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 percent 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 percent 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 percent 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 percent 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 1.2 billion euros and 1.5 billion euros ($1.5 million-$1.9 million) in 2013 on revenues between 88 billion euros and 92 billion euros. 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.
The combined partnership expects growth in North America, Latin America and Asia, while sales in Europe are forecast to decline. Last year, Fiat and Chrysler sold 2 million vehicle sin North America, 1 million in Europe, 979,000 in Latin America and 115,000 in Asia.
North America is expected to account for half of 2013 sales, while Latin America and Europe should each contribute 1 million units. Deliveries in Asia, where volumes are much lower, are expected to double.
Marchionne confirmed that the group will break even in Europe by 2015-2016 thanks to plans to invest in Italian plants to build luxury cars for export. Fiat's Italian plants have been sorely underutilized, running at 44 percent of capacity last year, as the car company invoked short-term layoff schemes to reduce production and match lagging demand.