By on August 18, 2017

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First it was Geely. Then Dongfeng. Now add Guangzhou Automobile Group to the list of Chinese automakers that have denied interest in acquiring Fiat Chrysler Automobiles (FCA).

FCA has seemingly been seeking a dance partner for a merger or acquisition for a year or two now, and the company’s stock rose earlier this week when Automotive News reported that a “well-known Chinese automaker” had made an offer to acquire FCA. The company has a market value close to $20 billion. Automotive News reported that the offer was rejected for not being enough.

If you’re reading carefully, you’ll note that just because three of the most well-known Chinese makes have declined interest, it doesn’t mean FCA is standing forlornly along the gym’s wall as everyone else dances. The list of major Chinese automakers is long, and BYD, Chery, SAIC and others could still step up – one of them, or another Chinese manufacturer, could have made the offer that AN reported on.

If the report is accurate, it marks progress for FCA. Fiat Chrysler’s earlier overtures to General Motors went nowhere, and Volkswagen also threw cold water on any attempts at a partnership.

By my count, that makes five automakers – three Chinese, one American, and one German – that have said they were going to be spending the weekend washing their hair when Sergio came calling.

It’s interesting that after two years searching, FCA has reportedly turned down an offer for being too low. Automotive News reported that the offer was just above the company’s market value.

This means Sergio either obviously thinks the company is worth far more than that, or there were other issues with the deal (or both).

A Chinese partnership with/ownership of FCA does make sense – it would give the Chinese automaker access to FCA’s successful Ram and Jeep brands while giving FCA an influx of cash that could help it address the segments where it’s weak.

If the offer was rejected for being a little low, it’s obviously possible that the potential buyer could come back to the table with more cash. If that’s the case, and if a deal is struck, FCA may no longer find itself along the wall.

[Source: Reuters] [Image: Fiat Chrysler Automobiles]

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26 Comments on “FCA Losing Potential Dance Partners, Foreign and Domestic...”


  • avatar
    moff90

    “The list of major Chinese automakers is long”

    But how many of them have more than $20 billion in cash laying around?

  • avatar
    dmoan

    No surprises here as i mentioned before FCA products are of low quality and its gotten even worse under Sergio. To make matter worse their customer service is terrible in the new era (my chrysler resolution agent has not contacted me even after leaving her 10 VM). Any potential suitor knows the future profit margins are going to get stretched thin with lackluster products and warranty costs.

  • avatar
    JMII

    Why is FCA so interested in a dance partner? Are they that short on cash? Do they feel the auto industry needs more consolidation? On the flip side we have Honda that apparently wants no partners, so they must doing great.

    • 0 avatar
      carguy67

      Peter DeLorenzo has been laying bare the FCA problems for years. Example:

      http://www.autoextremist.com/current/?currentPage=4

    • 0 avatar
      JohnTaurus

      “Are they that short on cash? ”

      Yes. Jeep and Ram are keeping the lights on, but clearly they don’t have the capital to fill out their lineups, or replace models that should have been gone long ago (LX cars).

      “Do they feel the auto industry needs more consolidation? ”

      Sergio has said such many times.

      “On the flip side we have Honda that apparently wants no partners, so they must doing great.”

      Why is Honda any different than of the other major manufacturers who neither want, nor need, partnerships? GM isn’t looking. Ford isn’t looking. The only automaker that is seemingly hell bent on being taken over by, or merging with, another automaker is FCA.

  • avatar
    carguy67

    “It’s interesting that after two years searching, FCA has reportedly turned down an offer for being too low. Automotive News reported that the offer was just above the company’s market value.”

    Don’t suitors of a public company usually have to make an offer significantly over the current share price–aka ‘market value’–to get shareholders to go along?

    • 0 avatar
      gmichaelj

      Yeah, you have to offer a premium to get the target board of directors to agree to the takeover.

      Control Premiums vary by industry and vary over time within the industry. The likelihood of the deal getting done is gauged by the percentage the stock price is trading for after the rumor becomes public knowledge.

      As I recall, the general rule of thumb is 10% above current market capitalization. Any less than that, and the deal (even if announced and agreed to by both companies) is seen as “unlikely”.

      Looking at FCA’s stock price over the past month: 12.05 on July 19. 12.56 a month later (today Aug 18).

      Then as low as 11.61 on Aug 11, and as high as 12.78 on Aug 16 – 10% over a couple of days.

      A casual observer might conclude there maybe was something to it for at least a few speculators/investors but it doesn’t look like a vote of confidence in a deal getting done to me. More like a pump and dump.

    • 0 avatar
      Lorenzo

      Market value is the value of all the stock issued at today’s price – it fluctuates. There’s also reasonable book value, which should take into account accumulated debt, and there’s breakup value, the value of all the parts if sold separately.

      Breakup value is higher than the market value, especially if some husk is left over (Fiat) to go bankrupt and wipe out the accumulated debt. Breakup is a last resort – the Agnelli family could never live it down, and the lawsuits would take years to resolve, not necessarily in the Agnellis’ favor.

      They hired the “Amazing Sergio” to find another way to extricate them from the auto biz and convert their current $6 billion stake in FCA to cash. That’s what he’s trying to do, and there’s a handsome reward in it for him.

      The gift of Chrysler kept Fiat alive, but he’s mismanaged the overall car business, like he mismanaged Fiat earlier, and cheapened the product he’s trying to sell. He should have grabbed Bob Lutz to make car decisions at Chrysler, left the Italians in Italy to run Fiat, and concentrated on building a line of credit that would have made the combined company more attractive.

  • avatar
    thornmark

    The value of FCA is Jeep and Ram.

    The Italian stuff has negative value and the Chrysler and Dodge components are probably worth next to nothing.

    If a Japanese manufacturer other than Nissan got Jeep and Ram they could maximize value w/ their well-known quality practices.

    FIAT is, was, and will always be, crap. Let the Chinese have FIAT, they certainly can’t ruin it.

  • avatar
    Middle-Aged Miata Man

    Design/build quality peaked with 90s Toyotas and Lexuses, and it’s been sliding downhill ever since.

  • avatar
    Jeff S

    The Chinese might still get FCA when the next bankruptcy occurs. At the right price the Chinese could keep Jeep and Ram and shutter Fiat, Alfa, Chrysler, and Dodge. My opinion is that Sergio is looking for a golden parachute.

  • avatar
    darex

    Remind me again WHY we bailed Chrysler out?

    • 0 avatar
      Lorenzo

      Because 1) the credit market was frozen and no private money was available for the line of credit needed by both Chrysler and GM to continue in business

      and 2) letting either or both go bankrupt would have led to bankruptcy of several large parts suppliers who also supplied other automakers, causing the entire industry to collapse.

      This is what happens when idiots in government allow banker stupidity to freeze the normal lines of credit that make a large, integrated economy operate.

  • avatar
    Jeff S

    Same reason as GM, to save all those UAW jobs. Hecho in Mexico & China.

    • 0 avatar
      bd2

      Or rather, to keep the Great Recession from turning into another Depression.

      Unemployment benefits, the loss of tax revenue, etc. would have been more than the cost of of the bailouts.

  • avatar

    I wrote Chrysler off when they cancelled the 200 and Dart. You can’t be considered a major car company if you cannot produce a family sedan.

    In the early to mid 90s Chrysler was one of the most admired car companies in the world. Then Eaton sold out to the Germans and the rest is history.

  • avatar
    Jeff S

    All for saving jobs during a recession but the bond holders got the shaft. Chrysler ended up being given to Fiat. The deed is done but let’s not repeat this. There are worse things than the Chinese taking over FCA. FCA is a dead company walking and with Chinese ownership it might at least stand a chance of survival even if some of their brands have to be axed.

  • avatar
    MGV001

    For all the business savvy credited to Marchionne, I can’t believe the way he’s going about selling the company. Everyone knows he’s been trying to put lipstick and makeup on a pig for years. Throwing away good money on a dead brand while neglecting and ignoring the ongoing EV revolution. No one is going to spend anywhere close to $20B when they know that in a few short years they will be able to buy it all from the bankruptcy court for pennies. Buyers are just circling like vultures, getting an inside look while they wait for the inevitable.

    • 0 avatar
      Lorenzo

      If Sergio can’t sell the whole pie, he’ll sell it by the slice, that’s his worst case scenario. Nobody will buy value for pennies, there won’t be any value left after he parts out the pieces, just a hulk saddled with debt, after he “distributes” the sale proceeds of the pieces to the stockholders, of which the Agnelli family owns 37%. That time is coming, since Sergio SAYS he’ll retire “after” 2018. If he doesn’t find a buyer now, he’ll start parting out the company.

  • avatar
    Jeff S

    If Marchionne and FCA don’t take an offer then the Chinese will wait till there is a carcass and start picking away. Might not be too long a wait.

  • avatar
    Sub-600

    Then there’s still a chance I might be able to get a real Cher(r)y Challenger someday.

  • avatar
    threeer

    As reported this morning in Reuters, don’t count China out yet for assuming FCA. I know that Jeep is currently held by an Italian company, but a large part of me just weeps at the thought of Chinese ownership of Ram and Jeep.

    https://www.reuters.com/article/us-fiat-chrysler-m-a-great-wall-idUSKCN1B10HU

  • avatar
    MGV001

    The only part he can sell for $$$ is Jeep. If he does that, the rest will go for pennies.

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