Fiat Chrysler Automobiles N.V. (NYSE:FCAU), or FCA, CEO Sergio Marchionne has not given up his appetite for expansion. In fact, the Italian-Canadian executive’s next target could be the General Motors Company (NYSE:GM).
While Marchionne remains optimistic, General Motors seems hostile. Mary Barra, GM’s chief executive officer, has already rejected FCA’s advances twice. But there “must be something about Mary,” because Marchionne, who some call the world’s most feared CEO, is not one to back down and is said to be crafting a move worthy of Greek mythology, using hedge funds and activist investors as a Trojan horse.
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The possibility of market dominance has stimulated the appetite of some of the world’s savviest financiers, which could ultimately tip the balance in favor of GM’s board approving a merger with FCA, even if it means opposing Barra. Marchionne himself has complained, or joked, that GM’s CEO has not even responded to e-mails and phone calls, while publicly urging him to stop speaking about this in public.
But Marchionne, who studied philosophy and understands Machiavelli well, is using Barra’s own complaints against her, citing her refusal to negotiate or entertain his offers to weaken GM’s chief executive before her shareholders. Marchionne has also “complained” that Barra, as an engineer, lacks financial acumen (even if she actually has an MBA) as well as observing she has rarely “set foot” beyond the United States.
There is a reason why many renowned managers fear Marchionne. He does not give up easily and he is resourceful like few others. The FCA boss, who led Fiat from near collapse in 2006 to becoming the world’s seventh-largest automobile group—Fiat was once one of the top three, way back in the 60s and 70s when Italy’s annual growth rate rivaled that of modern China—has secured support from activist investors and hedge funds owning large GM positions.
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Marchionne has called Warren Buffett to the stand. The famous investor owns 2.6% of GM and until recently, he was a cheerleader for Barra in the GM board struggle over FCA’s courtship. Harry Wilson, who was a restructuring expert who held high posts in the U.S. Treasury Department and President Barack Obama’s Auto Industry Task Force, holding some two percent of GM’s shares, has also started to consider Marchionne’s offers. According to European media, Buffett has recently expressed an opening to Marchionne’s ambitions and George Soros, who owns one percent of GM, along with other hedge funds might be swayed as well.
In a related development, Greenlight Capital’s David Einhorn has been increasing his stake in GM at Apple’s expense. The hedge fund now owns just under three percent of GM’s stock. As of August 31st, according to Greenlight’s monthly report, GM was among the fund’s six largest holdings.
As for how Fiat-Chrysler expects to finance a GM takeover, the Ferrari IPO expected to take place next October will come to the rescue. Only 10% of Ferrari’s shares will be listed and the transaction was originally thought to be used to pay down FCA’s debt. Upon filing Ferrari’s IPO papers to the SEC, Marchionne said he wanted to raise about 5.0 billion euros, but he may have been purposely conservative as many expect an overall listing of 10.0 billion euros or about $12.0 billion.
In February, Marchionne told Bloomberg: “It won’t be a difficult placement. I wish they were all like this. The execution of this is going to be very short. We just need to be very focused on which investor base we’re going after and once we do that, you could probably sell it by the time you and I have a bagel in the morning.”
Meanwhile, as GM has lost market share, FCA has gained, even in North America, selling 202,227 vehicles, higher than analysts’ expectations by 2.6%. FCA has also enjoyed strong sales in Europe. In Italy alone, last June, the company sold 13% more vehicles year-over-year with gains in France, Spain, and Germany continuing in August.
For its part, the Chrysler brand saw 11 consecutive months of growth as of last May, adding pressure to GM’s board and shareholders. FCA, which owns Chrysler, Fiat and several prestigious marques such as Ferrari and Maserati, as well as Alfa Romeo, has proven that Marchionne’s recipe brings success.
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Marchionne said he is pursuing mergers because of his belief that consolidation in the auto industry is inevitable. While the talk has focused on GM, investors should not discount the potential for FCA to establish a merger or alliance with Google Car, Apple Inc. (also developing a car) or Tesla Motors, Inc.
Don’t Get Too Carried Away
Ultimately, FCA may not succeed in taking over GM, but the Frankfurt Auto Show will surely bring some of the most important developments in the automotive sector since the 2008/2009 bailout with new groups emerging, drawing attention from hedge funds and activist investors. Marchionne has predicted that another major automotive sector merger would take place by 2018. And it appears that the hedge funds are betting on this alliance being GM-FCA.
Nevertheless, a recent divorce between Suzuki Motors of Japan and the Volkswagen Group, VAG, has left the German company flush with cash and hunting for acquisition targets. Could it pull GM from under Marchionne’s rug?