Sergio Marchionne simply doesn’t know that “no” means “no”. The Fiat-Chrysler CEO’s advances to marge with GM have been rebuffed time and time again, but he’s not about to give up. Instead, he’s reportedly now turning to activist investors to persuade The General into joining forces.
Marchionne’s strategy isn’t without precedent: earlier this year, activist investor Harry Wilson, backed by a group of hedge funds, pushed General Motors to initiate a $5 billion buy back of its own shares and to create a capital allocation framework that would see the company return some of its free cash to shareholders. The situation has shown that GM CEO Mary Barra is willing to deal with investors, at least on some level.
Another, perhaps more noteworthy precedent, was set in 2006 when activist investor Kirk Kerkorian partnered with Carlos Ghosn to persuade GM to join the Renault-Nissan alliance. After much commotion, The General ultimately declined the offer, causing Ghosn to turn to Mercedes-Benz parent Daimler, which has the infamously-unsuccessful history of merging with Chrysler. Even so, the occasion still shows that GM will at least look into matters presented by activist investors.
For his part, Marchionne has been on a crusade to get automakers to consolidate into larger groups that can share resources and reduce overhead. Under his leadership, Fiat completed purchasing and consolidating with Chrysler in 2014. Even so, Marchionne has also been courting Volkswagen, Peugeot, Ford, and GM’s own Opel, among others.
We’ll see if Marchionne will be successful in his newfound initiative to merge with GM by way of activist investors. But something tells us that he will continue pursuing other automakers as well. Perhaps he’ll have more luck on Tinder instead.
Comments
I read an automotive news article a few days ago regarding the issue. The point he article makes is that Sergio is only persistent when he knows he has the chance to pin someone against a wall. Back in 2005 or 2007 I believe, he was close to forcing a buyout of fiat by General Motors, the company instead ended up with a 2 billion dollar check.
Long story short, this man is not to be trusted under any circumstances. This man does not care about the auto industry, saving money, fiat, Chrysler or GM for that matter. Fiat is in an even worse situation than it looks on the surface any person with half a brain will tell you that. This man wouldn’t be trying to pursue a merger with another automaker if there wasn’t something in it for himself. The fiat dynasty is sinking and neither him nor the shareholders want to restructure the damn company as all they want is easy money for themselves.
I worry that Sergio could win. He understands mergers far more than automobiles and will go for a hostile takeover.
If this were simply the old Chrysler Corp, it would no be so bad as GM is used to managing multiple brands.
FCA’s European operations are profoundly damaged, however, and the overcapacity will ruin the restructuring progress made by GM since 2009.
“He understands mergers far more than automobiles and will go for a hostile takeover.”
I have the same fear as well. If this man succeeds in persuading investors into buying FCA, this would more than likely be the end of the American auto industry as we know it. The only brand left would be ford. The only two cash cows keeping the company somewhat afloat are Jeep and Ram, but those won’t last when emissions targets hit the company like cinder block to the face in 2025. The FCA ship is sinking, and brother Sergio is retiring soon, but he can’t do that without solidifying his place in the automotive hall of fame (and taking a fat check home with him as well)
If Sergio “wins” – GM would likely take over FCA and it would be just GM at the end of the day.
But that’s the problem. GM would only benefit from Dodge, Jeep, and Maserati. All the other badges have overlap way too much with GM. And again, if GM wanted to fix that, they would be better off reviving Pontiac and Hummer for a fraction of the transaction cost (as sub-brands).
Even Ferrari is being spun off – so GM wouldn’t have a supercar badge from this either.
What technology does GM get from this deal? None I can see. FCA needs D2XX and Alpha, badly. FCA needs GM engines, badly. FCA needs weight shedding, badly.
FCA needs a lot, but I don’t see them giving a lot. To merge, you have to have something to give.
Mmm – didn’t he miss his chance by aligning with that Harry Wilson activist investor who already forced a $5b stock buyback? That was a few months ago. Maybe there’s another hedge fund mook he can align with.
But it seems Sergio’s kinda behind the curve on this one.
Sergio is a dangerous man right now. He is desperate and willing to go to extreme measures.
He needs technology and a fleet of smaller cars as he really has little to work with now and for the most part no money to fix it. By leeching on to GM he hopes to save his company but the real truth is he could do so much damage he could easily take them both out as he vanishes off with his own money.
GM is being proactive to protect themselves from this merger.
The thing I feel will most likely come from this is FCM will fail one way or the other and I hope GM can prevent them from doing them harm.
Daimler did a lot of damage to Chrysler as they really did nothing well with small cars that they desperately need today. They left Chrysler with nothing to revamp their RWD cars with and what money they had left was plowed into the Trucks and Jeep. Even at this point while truck sales are up they are discounted to the point there is not as much meat on the bone as before.
I was in a meeting with the head of Direct Connection and he was filling us on what all the changes he was working on. He has a major task as he was challenged to bring them back to once what they were before they too were damaged heavily.
I am hoping GM can prevent FCM doing anything and if needed they need to take FCM out if it has to come to that.
The hostile take overs can work both ways and GM or some group can come in buy FCM out as they are holding little value and then sell them off a pieces at a time. Some of their bits do hold some value. Say GM and VW could come in and buy them as a joint deal and VW can take the trucks and may be Alfa and GM could take Jeep and they could part out what is left.
Oh and put Sergio on the curb in London selling pencils.
I don’t expect that to happen but we may see something odd happen.
I have read on other websites that it isn’t up to GM if they want this or not….The deciding factor will be the fat cats on Wall Street. If Sergio gets any kind of traction with this “Hostile Takeover”, is there a way for the “common” people to rise up and protest ? I know it sounds corny… But the idea that Ford has the possibility of becoming the only fully American car company has me quaking in my boots.
If it happens, I’m off to the Ford dealer. Oh well.
Activist investors have ruined many a good company.
I was never one of those who said “I’ll never buy another GM vehicle since they had to take Government money”…However I might become a Ford fan overnight if this unholy union does take place.
All, think about the effect it will have on the supply base…….consolidating these 2 into 1 will have devistating effects. The leverage against the supply base will be tremendous and they will continue to force the suppliers to give back productivity money (as they so call it).
Also, think about the jobs side of things. There will be overlap once merged. Job consolidations, lay-offs, firings etc. Sergio see’s synergies and believes it will help them with the billions be expended in R&D / engineering – he is only thinking about himself. In addition, consolidation of vehicle/ truck platforms and engines will have an impact on the supply base. This is not a “jobs creation” mechanism. This will have a very large negative impact on people.
It is true if this would come about it would not be GM;s choice and they could be forced to take them over.
Now why would you punish GM for basically getting raped by Sergio? This would not change the GM lines and just basically just force some failing FCA lines on to GM that they do not want.
It would be wiser to support the GM lines and let the FCA lines fail and let GM clean them out.
GM now is working to prevent any such hostile moves right now. I feel they can fend this off but it could hurt them financially if they have to do a Poison Pill move. Goodyear had to do this years ago against a hostile financial guy. It slowed their growth but in the end they are now stronger and still independent. The greatest risk here is how much Damage can Sergio do and GM still remain independent.
One option is GM remains on it’s own just as FCA but they do a limited partnership on technology or the such. GM would share some technology or platforms with FCA in return for some cash on what they make with it. This way Sergio gets what he wants GM remains undamaged. In other words here kid here is a dollar now go away.
To be honest it is not in Sergio’s full benefit for a full GM merger as it will only delay what would happen anyways. If GM took over much of FCA would be shut down.
Also factor in all that would have to approve of such a move. I suspect that even if this was put into play the government here may not approve it. In Italy too if there is a risk Fiat could be no more I could see it not moving forward. Unless since they are now bases in England would they have to make the call.
It is all very complicated and has a good ways to go yet before anything happens.
The bottom line is Sergio would not be in charge and I will remain with GM as I understand they need the support. But do not expect me to buy a FCA car ever.
To be honest FCA is in worse shape than most people can even imagine. My statements of them being gone in 10 years are echoed by many on wall st.
I read on Forbes website that one of the biggest roadblocks with GM to be merged with anyone is that do to the tax deterent that the irs let GM have during restructuring. GM would lose so much of thier capital with a merger. There is no way the Board and other investors will let this happen. If there are a few hedge fund activists that do push for this merger, I would see someone like Warren Buffett coming in and telling them to sell thier stocks and him and other investors buying out the difference.
You are correct, Scott. I have been a GM supporter since my youth, through the ups and downs of the company. I will continue to be a GM fan ( I’m seriously thinking about buying a 6th Gen Camaro next year). However, I have come to the conclusion I will never buy an FCA vehicle (sorry, Challenger and Charger).
Time and Motor Trend (as well as other notable publications) should put Sergio on their cover with the title being ” The Most Hated Man In The Auto Industry”.
He should be called out for how immoral and ethically disgusting this whole mess is.
Sergio is just doing what he is paid to do and he is desperate. I am not a fan of his actions but it is part of the free economic system. The bottom line of any business is to make money and too many of us forget that. What he is doing is legal so you can not fault him.
On the other hand This is always a risk when a companies stock is much lower than you like. If GM’s value was higher he would have an impossible time getting people to buy in.
The real trick here is once FCM would buy in it would hurt the stock of all involved so I have not seen an advantage of yet. Most of FCM would be shut down as they are so not viable at this point. The trucks would be sold off and Jeep is really the only thing of value. Ferrari is not even included here so there really is no value and FCM is really just a leach.
GM I believe would survive but would find this a major capital setback. It would slow progress much.
In the end I think the Government would stop this as they can not let the two companies they bailed out die. Even if they have to let one go they will save the stronger one. They have little legacy to stand on at this point and already lost much in the deal on paper so I would expect them to stop any move like this if they can.
The GM board is looking into ways to stop this and one way is to buy back stock. It would hurt them with their money but it would add value to the stock to where it could stop the attempt.
At this point I think others in the industry may want to get involved too as if they do not go for GM they could try for one of them too. Also the damage of GM would hurt the rest with suppliers as many suppliers could fail. Just like in the bail out Ford grumbled some but it was because they did not get the deal when they needed it but yet they were afraid of what would happen to the suppliers if GM was let to die.
…But I do fault Sergio, he is a narcissist who exhibits traits of extreme machiavellianism. What he is doing is legal, but morally and ethically ? I think not.
GM has enough on its plate with the ignition switch fiasco, it shouldn’t have to deal with Il Narcisista.
I hate to suggest this but, aside from a poison pill, GM has two other options : Additional 10 billion stock buyback which would deplete it’s firewall it a partnership with another player such as PSA or Honda aimed at reducing costs.
Well before we get that far Sergio first has to secure the money from groups willing to fund such a venture.
At this point I am not sure that will be all easy. The bottom line is to save FCA but even if you do this to GM the odds are both will go down and both will lose money. Not much point to invest here.
Even with the GM sharing of platforms and technology the odds are they will go down anyways.
I suspect he just wants to share in the technology and the threat of a hostile take over is just that a threat. I think GM is looking at do they need to share technology to keep him away or can they afford to call his bluff.
Lets face it how many here would give Sergio money to do this with the expectations he would make a profit from it?
FYI…
GM unlikely to feel heat from activist investors on Fiat merger:
Jun 22 2015, 12:08 ET | By: Clark Schultz, SA News Editor Contact this editor with comments or a news tip
Activist investors holding shares of General Motors (GM +0.9%) won’t push the automaker to talk merger with Fiat Chrysler Automobiles (NYSE:FCAU), according to Financial Times.Sources say a group of hedge funds that hold about 1.5% of GM’s shares value cost-cutting at the company over a complicated Fiat merger plan.Their stance is line with GM CEO Mary Barra who has politely declined to talk to her counterpart at Fiat about a combination.
Here is a link to the Financial Times article…
http://www.ft.com/intl/cms/s/0/95078a10-1699-11e5-9883-00144feabdc0.html#axzz3doeYFsRL
Not to mention the UAW which is GMs largest sharholder also stated they would not approve anything that could result in job losses. And if this deal went through there would be plenty. I leased one chrysler product last year, a 2014 Charger R/T. And the only reason was GM did not have anything I was interested in other then Cadillac which is out of my price range.
You better believe that after seeing what Fiat is trying to do I will never consider a Chrysler product again.