A 2015 Chrysler 200 automobile moves down the assembly line at the Sterling Heights Assembly Plant in Sterling Heights. (Paul Sancya / AP)
Chrysler Group LLC said Wednesday its second-quarter earnings rose 22 percent to $619 million. Following that announcement, CEO Sergio Marchionne said if dissenting Fiat SpA shareholders who want to cash out their shares hit a cap, Fiat will try again for a merger with its Chrysler unit at a later time.
Marchionne said he believes the press has “overplayed” withdrawal rights for shareholders. Last week, Fiat SpA shareholders approved a plan to merge Fiat with Auburn Hills-based Chrysler, which it already owns completely. Shareholders voted to merge the Italian-based Fiat into Fiat Investments, a subsidiary legally based in the Netherlands and with offices in London. Once that occurs, the company will be renamed Fiat Chrysler Automobiles NV. Fiat is hoping to have a stock listing on the New York Stock Exchange beginning in October.
“If we trigger the 500 million cap on the withdraw..., there is no merger,” Marchionne told analysts and reporters on a call Wednesday, adding Fiat would wait for better conditions to try again.
He said dissenting Fiat shareholders have until Aug. 20 to exercise their rights to cash out their shares and he expects to know whether the cap was met four or five days later.
Regardless of what happens, Marchionne reaffirmed that Chrysler and Fiat already are combined as one economic entity, and operationally nothing would change. He said it would not change the company’s five-year plan laid out in May that looks to ambitiously grow global sales and profits.
“Even if the merger were not to happen, the plan is in place and life will go on,” he said.
Fiat shares on Wednesday were temporarily suspended after an excessive drop due to investor concerns that a planned merger with Chrysler may be blocked. The company’s shares fell 5.6 percent to 6.47 euros ($8.64) in Milan trading Wednesday. Marchionne said a drop in gross domestic product in Italy also may have hurt the share price.
Morningstar Inc. analyst Richard Hilgert, in a research note Tuesday, said Fiat’s stock was being driven down by temporary factors such as a rumor on shareholder exit rights and Jeep cutting prices in China following a government pricing investigation.
A Chinese regulator on Wednesday said Chrysler will be punished for violating anti-monopoly rules. On Tuesday, Chrysler announced a 20 percent price cut in China for its Jeep Grand Cherokee SRT8 and Grand Cherokee 5.7L. Chrysler wants to boost sales of Jeeps in China and is bringing more vehicles to the region. Last year, Jeep sold about 60,000 vehicles in China.
Marchionne said Chrysler hopes to have a “quick resolution” to the China issue and hopes in the next few weeks to know what the potential exposure could be. “We have been working constructively with the regulators to get this issue behind us,” he said.
Some investors are concerned that the payout tied to cashing out of stocks, which has been set at 7.727 euros per share to reflect Fiat’s recent average stock price, might exceed Fiat’s 500 million-euro cap. If it does, it would derail the merger at least temporarily.
Fiat on Tuesday issued a statement saying it was aware of market rumors suggesting it had received a volume of notices to exercise the cash exit rights that exist with the approved merger. “These rumors are groundless,” Fiat said.
Marchionne wants a merger for the company so that it can compete with global players such as General Motors Co. He said a merger would give the company access to capital markets in the U.S., and that the U.S. environment offers financing alternatives that would benefit the company.
Under the merged company, Chief Financial Officer Richard Palmer, other finance professionals and some other corporate functions would relocate to London, and the board and executive council would meet there, Marchionne said. He said that Auburn Hills would continue to be the North American headquarters for the combined company, while Turin, Italy, would serve as the European headquarters.
“Day-to-day operations will sit where they sit today,” he said.
Chrysler said its revenue jumped 14 percent to $20.5 billion in the second quarter with higher sales of the Ram pickup and sales of the Jeep Cherokee. Chrysler earned $507 million in the second quarter a year ago.
Revenue for the first half of 2014 totaled $39.4 billion, up from $33.4 billion in the first half of 2013. Palmer said increased pricing, more shipments and a stronger mix of vehicles was more than enough to offset higher incentive spending on older vehicles and higher advertising costs. Chrysler launched an all-new 200 sedan during the second quarter.
The automaker also reaffirmed its guidance for 2014; Palmer said the company expects some incentive reduction. It expects to ship about 2.9 million vehicles, up from 2.8 million previously announced, and said revenue should exceed $80 billion, modified operating profit will range from $3.7 billion to $4 billion, and adjusted net income will total between $2.3 billion and $2.5 billion.
Hilgert, in a Wednesday research note, said Chrysler reported better than expected second-quarter earnings and he expects Chrysler will “continue to bolster the combined Fiat Chrysler’s profitability and returns.”
“They’re very well positioned to continue to make great numbers going forward,” Kelley Blue Book’s Karl Brauer, senior director of insights, said in a telephone interview.
The company’s vehicle sales in the second quarter totaled 723,000, up 12 percent, driven by a 16 percent increase in the company’s U.S. sales to consumers and sales of Jeeps.
Chrysler’s U.S. market share hit 12.1 percent in the second quarter, up from 11.4 percent a year ago.
Fiat in late July said its second quarter earnings before interest and taxes dropped 10 percent to 961 million euros ($1.29 billion). Fiat missed analyst estimates due to a sales drop in Brazil and increased spending in the U.S. and Canada. Chrysler in the first quarter reported a loss of $690 million after it bought out shares of a union retiree trust and took a charge related to a worker training program.
The Associated Press contributed.