August 1, 2014 at 5:49 pm

Fiat shareholders OK Chrysler merger

Fiat's Chairman John Elkann, left, speaks near Fiat Chrysler Automobiles Group Chief Executive Officer Sergio Marchionne at a general assembly of shareholders of Fiat at Lingotto in Turin, on Friday. (Marco Bertorello / Getty Images)

Fiat shareholders voted Friday overwhelmingly in favor of a merger with Chrysler that has been five years in the works and will shift 115-year-old Fiat’s center of gravity abroad.

The approval paves the way for the new company, to be called Fiat Chrysler Automobiles NV, to list its shares in the U.S., likely by mid-October. It will be legally based in the Netherlands and have its fiscal home in Britain.

A caveat to the merger remains: Dissenting shareholders have a couple of weeks to opt out, cashing in their shares at 7.727 euros ($10.35), about 7 percent above current share price. Creditors have a longer opt-out period of 60 days.

If the total request exceeds 500 million euros, CEO Sergio Marchionne said the merger would be off — temporarily.

“If it should go badly, we will come back at another time,” Marchionne told reporters. He said he set the 500 million euros ceiling as “the amount I was willing to pay.”

A total of 85 percent of shares represented at the assembly were cast in favor of the merger. The votes against represent some 8 percent of total shares, which would easily put demand over the 500 million-euro cap. However, the vote is not necessarily indicative of a desire to cash out: A number of the shareholders said they were voting against for sentimental reasons, citing Italy’s loss of prominence in the Fiat universe, but that they intended to stay on as shareholders.

Chairman John Elkann, whose family controls 30 percent of Fiat’s shares, said they would not see a postponement of the merger as a failure. “We are hopeful,” he said.

Marchionne told the more than 1,200 shareholders present at what is likely to be the last general assembly in Turin, Fiat’s birthplace, that the alliance has already made Fiat Chrysler the seventh-largest automaker in the world, producing 4.4 million cars last year.

He is betting that the combined company, boosted by 48 billion euros ($67 billion) in planned investments in part to push Italian production toward higher-margin luxury models, would have the capacity to produce 7 million cars a year by 2018.

But Marchionne also acknowledged that markets were skeptical of his ambitions. Shares in Fiat have dropped 14 percent since he laid out Fiat Chrysler’s five-year plan in May. On Friday, stock closed down 1.9 percent at 7.11 euros in Milan.

“We almost went bankrupt in 2004 as Fiat and Chrysler did go bankrupt in 2009,” Marchionne said. “Sinners have to bear the burden on proving themselves. We are willing to pay the price.”

A place on Wall Street

The vote approving a merger with Chrysler sealed the end of Fiat as an Italian company. Chrysler Automobiles NV will be incorporated under Dutch law, based in Britain and listed on the New York Stock Exchange. The head count at Chrysler’s headquarters in Auburn Hills shouldn’t be greatly affected.

By combining resources with the U.S. carmaker, the company can better compete with heavyweights like General Motors Co., Volkswagen AG and Toyota Motor Corp., the CEO says. A brush with bankruptcy a decade ago proved the Italian focus was unsustainable.

“Marchionne needs the lights of Wall Street,” where Fiat Chrysler plans to locate its primary listing by mid-October, said Vincenzo Longo, an investment strategist at IG Group in Milan. There’s more opportunity there than at a “peripheral place like what the Italian market has become.”

Marchionne told shareholders Friday that he’s targeting annual group revenue exceeding 130 billion euros in five years. That would amount to a 50 percent increase from the 86.8 billion euros posted last year. The carmaker probably won’t need to sell shares to fund growth, though any decision will be up to the new company’s board, he told journalists later.

There’s little option for Fiat as a stand-alone company. North American operations, which were nonexistent before Fiat gained control of Chrysler about five years ago, accounted for 62 percent of group second-quarter operating profit. The manufacturer’s once-core European operations lost 6 million euros, as the saturated market gradually recovers from a two-decade low. Without its U.S. division, Fiat would have been unprofitable in 2012 and 2013.

To reduce Fiat’s reliance on Italy for sales and as a production base, Marchionne started seeking a partner about 10 years ago when he took charge of the manufacturer, which was financially strapped.

The search, which included a failed bid for GM’s Opel unit, wasn’t successful until Chrysler’s 2009 bankruptcy. Faced with the prospect of liquidating America’s third-biggest carmaker, the U.S. government gave Fiat a chance to turn around the Auburn Hills-based company.

Chrysler said Friday that its U.S. deliveries jumped 20 percent in July, propelled by a 41 percent surge for Jeeps. The growth marked the 52nd consecutive monthly sales gain for Chrysler in its home market.

Rehiring workers in Italy

While Italy won’t be completely abandoned, it will become less central. The headquarters will move from a villa adjacent to Fiat’s former Lingotto factory. The new location will be in Slough, England, until Fiat opens a London office by the end of the year. Milan will be relegated to a secondary listing for FCA’s shares.

To take the sting out of the shift, Marchionne plans to keep administration and information-technology functions in Turin. He’s also vowed to keep all of Fiat’s Italian factories open and rehire about 30,000 line workers, who are largely on furlough.

To do that, he plans to build the compact Jeep Renegade as well as other models from the Chrysler brand in Italy. Fiat also intends to expand the upscale Alfa Romeo and Maserati nameplates to compete worldwide with the likes of BMW, Audi and Porsche. The CEO reiterated Friday that the manufacturer’s commitment to Italy will remain unchanged.

Still, the deal isn’t a cure-all. FCA lacks a sizable presence in China, and its Latin American operations are struggling. Even before the Chrysler combination is finalized, Fiat has been linked to mergers or deals with Volkswagen as well as France’s PSA Peugeot Citroen in recent weeks. While Fiat has publicly denied talks, the reports reflect investor skepticism about Fiat’s ability to meet its targets, even as Marchionne basks in his fairy-tale deal.

Before Chrysler’s turnaround under Fiat, “we were the poor kids, Cinderella at the ball,” the CEO said in June. “People in the U.S. actually like that. They like what happened.”

The Associated Press and Bloomberg News contributed.