By on June 18, 2015

Abarth 500

The Lifetime movie starring FCA has reached the “dangerous stalker” phase, as the automaker and General Motors recruit advisors amid a merger standoff.

Despite GM and CEO Mary Barra both rebuffing FCA’s and CEO Sergio Marchionne’s attempts to consolidate the two automakers and their respective resources, the former has brought aboard Goldman Sachs and Morgan Stanley for advice in handling the latter’s attempts to force the issue, Reuters reports. FCA is being advised by UBS, with help from Lazard via the automaker’s founding Agnelli family.

For months, Marchionne has been beating the drum of consolidation, going as far as to recruit GM investors to force the automaker’s board to meet FCA at the negotiation table. His reasoning amounts to reducing costs involved in developing platforms and technologies for new vehicles by spreading those costs throughout two or more merged parties.

However, for FCA to make GM theirs forever and always, sources close to the matter claim the automaker would need to pay $77 billion in an all-stock transaction, based on GM’s shareholders demanding a 35 percent premium regarding market capitalization, as well as a significant payout on their shares.

The hostile takeover would put FCA under financial strain, as well. Its market value — most of which is linked to Ferrari, which is set to strike out on its own later this year — is around $57 billion, while capitalization is $20 billion, much smaller than GM’s respective figures of $84 billion and $57 billion.

(Photo credit: Shane Hayes/Flickr/CC BY-ND 2.0)

Get the latest TTAC e-Newsletter!

29 Comments on “General Motors, FCA Recruit Advisors Amid Merger Standoff...”


  • avatar
    28-Cars-Later

    I know we all seem to think this is Kabuki Theater but combine this:

    “GM’s shareholders demanding a 35 percent premium regarding market capitalization”

    with this:

    “FEBRUARY 19, 2015, 12:05 PM EDT

    Is the automaker undervalued?

    Two of the world’s savviest investors, Warren Buffett and George Soros, have increased their already substantial holdings of General Motors Co. GM stock, a sign that smart money has decided its shares are undervalued.

    Earlier this month, Harry Wilson, the representative of four investment funds holding around 2% of GM common stock, announced the funds want the automaker to buy back $8 billion worth of stock and appoint him to its board of directors. Wilson, in an interview with the Wall Street Journal, said GM must be “more attentive to its cash balance and its operating performance” and address “shareholder frustration.”

    The moves by Buffett and Soros were disclosed in filings reflecting increased holdings of GM shares in the fourth quarter of last year, prior to Wilson’s public announcement. Neither has said anything critical of GM; Buffett earlier expressed support for GM management. Each of the men has also expressed interest in buying retail automobile dealerships in the U.S., Buffett having an agreement to acquire the privately owned Van Tuyl group.”

    http://fortune.com/2015/02/19/gm-buffett-soros/

    and now add the vampire squid on the GM side… I’m starting to think this could be a thing.

  • avatar
    wmba

    Just like people who buy a house next to an airport that’s been there 60 years, and then complain about the noise, these new economic campers buy up some stock of some company or other, then complain about the dividend, agitating the tree to shake a few more shekels loose.

    Got no time for them. After all, if the barking dogs against labor can tell a prole to get another job if he doesn’t like the one he has, then a company should be free to tell an investor that if s(he) doesn’t like the return, go buy another company’s stock why don’t you. It’s a free market.

  • avatar
    mjz

    I just don’t see a GM/FCA tie-up making much sense. Other than Jeep, GM doesn’t need the various additional brands in the FCA portfolio. Same goes for Ford. A merger with Jaguar/Land Rover/Tata, Puegeot/Citroen, or even Volvo/Geely makes a lot more sense from a geographic and product stand point for FCA.

    • 0 avatar
      28-Cars-Later

      Volvo/Geely and JLR probably don’t have the economies of scale Sergio needs.

      • 0 avatar
        mjz

        I think our boy Sergio is really looking for a BIG cash payout, ala Bob Eaton in the previous Chrysler “merger of equals” so he can retire to a villa in the Tuscan Hills. I am not sure this is all about economies of scale at all.

        • 0 avatar
          28-Cars-Later

          Maybe, and this “payout” idea would add to my speculation the Agnelli family wants out of auto mfg.

          • 0 avatar
            Lorenzo

            I think you may be right. John Elkann, Chairman of the family holding company Exor (also FCA chairman), is looking for Exor investments in services, rather than capital-intensive industries like FCA and the construction equipment maker CNH it’s also invested in.

            Exor’s main investments, FCA , CNH and a real estate company, are only half it’s net asset value. That NAV is nearly $11 billion, they have over $3 billion in cash, and they’re planning on spending 2 billion Euros on non-industrial investments. Right now, they’re trying to buy a Swiss insurance company.

            It sure looks like they’re getting away from industrial businesses that require major capital investments, and that includes the auto business.

        • 0 avatar
          CoreyDL

          He should retire now to the Olive Garden Hills and stop squawking about.

          • 0 avatar
            Lorenzo

            He can’t retire until he makes one last deal that rids the Agnelli family of Fiat and its debt. Then he’ll get his reward and ride off into the sunset. Trump may have written “The Art Of The Deal”, but Sergio has been too busy making big deals to write books. I’d love to know what the reward to him will be for dumping the last piece of the old Fiat conglomerate.

          • 0 avatar
            28-Cars-Later

            “He can’t retire until he makes one last deal that rids the Agnelli family of Fiat and its debt.”

            This sounds like the start of a film or video game.

          • 0 avatar
            Lorenzo

            28-Cars-Later: you’re right, but I think several variations of the plot have already been made. The one that popped into my mind, (with a car involved) was “One Last Run”, with George C. Scott as a retired getaway driver asked to make one more trip. I’m not sure of the model, but I think his pride and joy was a BMW.

            There must have been many forgettable drug deal movies involving one last deal to pay back the capo. I doubt that a game would sell – too much plot and not enough action. Gamers don’t really go for character development either, but the idea, with the promise of gritty scenes, wordless emoting, and busty dames, is perfect for movies.

          • 0 avatar
            28-Cars-Later

            Thanks for the reply, I’m going to check out that flick.

  • avatar
    John R

    “…the former has brought aboard Goldman Sachs and Morgan Stanley for advice in handling the latter’s attempts to force the issue,…”

    What??

    • 0 avatar
      CoreyDL

      GM hired GS and MSSB to help.
      Fiat hired Lazard and UBS.

      • 0 avatar
        Lorenzo

        It’s a battle of financial advisers. This should be fun to watch. On the surface, it’ll probably dueling press releases, but with any luck, we’ll have a couple blabbermouths spilling the beans on the boardroom intrigue. I hope we don’t have to wait for an insider to write a book about what really went on, but there should be plenty of rumor and innuendo to feast on.

      • 0 avatar
        alluster

        “GM hired GS and MSSB to help. Fiat hired Lazard and UBS.”

        GS and MS will do a back end deal with FCA to make the merger happen. Lazard and UBS will extort money from GM to stall the merger. A year later, the four firms would have made $1B each, the merger will fall apart, and GM, FCA are each $2B poorer.

      • 0 avatar
        John R

        I understand that. What I’m on about is the chances of GM getting fleeced by hiring these two.

    • 0 avatar
      baconator

      Agree – this is puzzling. FCA can’t launch a hostile tender of GM, so GM doesn’t have to respond at all. If GM is hiring advisers its because they think a deal might be interesting and they want to work up the business case for it. Which is miles away from the point at which they might say they’re interested or begin negotiating seriously with FCA. But it’s voluntary.

      • 0 avatar
        Pch101

        I would presume that GM engaged the advisers in order to fend off a takeover effort and to provide a third-party explanation as to why a takeover should be rejected. Management can’t just unilaterally reject it without a formal explanation if there are shareholders who push for it.

  • avatar
    Tstag

    Why on earth would JLR want to get involved with FCA? Land Rover’s profits are strong and they rebuilding Jaguar nicely. That said if Ferrari was for sale I suspect TATA might make an offer.

    • 0 avatar
      Lorenzo

      Ferrari is/will be for sale, but only 10% of it, through an IPO. 80% will be distributed to current FCA stockholders, and the last 10% is owned by Piero Ferrari, Enzo’s sole surviving son, and Piero is Vice Chairman. Once FCA stockholders start selling their shares, there will be a chance to accumulate enough stock to take a controlling interest, But Enzo was no dummy. There may well be restrictions that allow Piero to retain his interest.

    • 0 avatar
      mjz

      FCA merged with JLR would make sense from a geographic and product standpoint as there is little overlap for either company. It would give Tata an instant mainstream presence in markets it does not play in currently (outside of Jaguar/Land Rover) and the Agnelli clan a chance to bail out of autos. This merger seems more logical than a forced merger with GM which has too much product overlap with FCA in cars and trucks.

  • avatar
    Feds

    It’s the circle of life, and it moves us all…

    Am I the only one who remembers last time Fiat and GM were tied up? Fiat was running themselves so poorly that GM paid them $2 Billion to avoid having to take a majority stake in Fiat.

    Fiat turned that $2B into their current product portfolio, which is starting to get a little long in the tooth, so they go back to GM to try the whole shell game again.

  • avatar
    CoreyDL

    So say you force it in front of GM board and investors. It still isn’t gonna make this stank pile of dog crap smell any better just because you put it on a silver tray in the board room.

    CP, Sergio, CP.

  • avatar
    alluster

    Sergio should take the lead in fixing ‘overcapacity problems plaguing the industry’. Give Jeep and Ferrari away for peanuts and shut down FCA. Problem solved!

  • avatar
    Kendahl

    FCA merging with GM or Ford reminds me of a photograph of a Burmese python that tried to swallow an alligator bigger than itself. Neither survived.

Read all comments

Back to TopLeave a Reply

You must be logged in to post a comment.

Recent Comments

  • ToolGuy: Here’s some clarity from the top guy: “It’s like, you know, what we have with — and we’re making...
  • ToolGuy: @Matt, “So I’m bailing so I can have a four-car garage and a big yard.” Are you actually...
  • EBFlex: “ Yeah, that Taycan really sucks at about everything it tries to do. What a POS.” I mean….when a used...
  • EBFlex: Oh thank god. Now that this liberal mouth breather has fox all of NYCs problems, he can focus on the real...
  • namesakeone: Can you extend the life of the car by installing a replacement fuel cell?

New Car Research

Get a Free Dealer Quote

Who We Are

  • Adam Tonge
  • Bozi Tatarevic
  • Corey Lewis
  • Mark Baruth
  • Ronnie Schreiber