Fiat Chrysler Automobiles (FCA) Chief Executive Officer (CEO) Sergio Marchionne has made headlines in recent months, calling for his company to merge with fellow Big Three auto manufacturer, General Motors (GM). ((See, e.g., Pamela Barbaglia, et al., GM and Fiat Chrysler are in a full-blown merger standoff, Bus. insider (Jun. 17, 2015, 5:17 PM), http://www.businessinsider.com/r-exclusive-gm-and-fca-line-up-financial-advisers-in-merger-stand-off—2015-6.)) Marchionne believes automobile manufacturers need to consolidate to avoid waste by developing multiple versions of the same technology to meet environmental regulations. ((See Tommaso Ebhardt and Chris Reiter, GM CEO Barra Resists Fiat Merger Call as Renzi Backs Marchionne, Bloomberg Bus. (Sep. 15, 2015, 6:04 AM), http://www.bloomberg.com/news/articles/2015-09-15/gm-ceo-barra-resists-fiat-merger-call-as-renzi-backs-marchionne.)) Although Marchionne recently stated that “the idea we can’t compete on our own [is] nonsense,” he has also categorized a potential merger as a “high priority.” ((Jeff Bennett and Christina Rogers, Fiat Chrysler Boss Says Auto Maker Can Survive With or Without Partner, Wall St. J. (Aug. 26, 2015, 2:11 PM), http://www.wsj.com/articles/fiat-chrysler-boss-says-auto-maker-can-survive-with-or-without-partner-1440612669. Fiat Chrysler CEO says pursuing merger with GM a “high priority”, Yahoo! Fin. (Sep. 8, 2015, 9:54 AM), http://finance.yahoo.com/news/fiat-chrysler-ceo-says-pursuing-merger-gm-high-175627882–finance.html.))
Unfortunately for Marchionne, GM has rebuffed FCA’s advances up to this point. For the last decade, GM has already consolidated internally, including buying back billions of dollars of its own stock, reducing costs by billions of dollars. ((Eric Sylvers and John D. Stoll, Chrysler Boss Recruits Activists to Prod GM Into a Merger, Wall St. J. (Jun. 8, 2015, 7:42 PM), http://www.wsj.com/articles/chrysler-boss-recruits-activists-to-prod-gm-into-a-merger-1433806966.)) Even still, GM sought the advice of Goldman Sachs on a potential deal in June. ((See Pamela Barbaglia, et al., supra.)) Three months later, GM CEO Mary Barra stated: “We have studied that issue in great detail, both with internal resources and external experts, and it’s not in the best interest of General Motors’ shareholders,” suggesting that GM’s stability and scope are enough to provide “the best return possible to [their] shareholders” by remaining independent. ((Tommaso Ebhardt and Chris Reiter, supra.)) Furthermore, FCA’s operating margin is half of GM’s, making it a less than attractive merger partner to begin with, and GM has had a contentious relationship with Fiat and Marchionne in the past, after GM was forced to pay $2 billion to get out of buying Fiat. ((See Eric Sylvers and John D. Stoll, supra.))
Marchionne has not ruled out a hostile takeover of GM. ((See Fiat Chrysler CEO says pursuing merger with GM a “high priority”, supra.)) However, Bernstein analyst Max Warburton recently wrote that a hostile takeover would be “beyond ambitious.” ((Pamela Barbaglia, et al., supra.)) One of the challenges facing FCA is that it is significantly smaller than GM, with a market value of approximately $20 billion and annual revenues around $108 billion, compared to around $57 billion and $156 billion for GM. ((See id.)) Additionally, much of FCA’s market value comes from Ferrari, which would not be included in any merger with GM. ((See id.)) Additionally, GM’s largest investor, Brock Capital Group, manages the shares for the United Auto Workers (UAW) healthcare trust for retired workers; the UAW would likely view a GM-FCA merger negatively due to projected losses in manufacturing jobs. ((See id.)) Furthermore, FCA would be stretched financially to put up a hostile bid, needing to pay approximately $77 billion to do so. ((See id.))
Ultimately, given GM’s aversion to a merger and the financial and logistical hurdles FCA would have to clear to successfully complete a hostile takeover, a GM-FCA merger seems unlikely. FCA may yet still merge with another corporation, however. Marchionne recently stated that although GM is the target, “there are other less-optimal combinations,” such as Google, Inc., which is testing self-driven cars, and Apple, Inc. ((See Ben Dummett, Fiat Chrysler CEO Sees Possible Merger Partners Other Than Reluctant General Motors, Wall St. J. (Jul. 10, 2015, 5:11 PM), http://www.wsj.com/articles/fiat-chrysler-ceo-sees-possible-merger-partners-other-than-reluctant-general-motors-1436562684.)) Either way, it appears that FCA, under the aggressive leadership of Marchionne, will continue to pursue a merger by whatever means possible.