FCA merger completed, NYSE listing to take place today

The merger of Fiat SpA and Fiat Investments NV - which holds the stake in Chrysler - to become Fiat Chrysler Automobile (FCA) has been completed during this past weekend. Fiat SpA announced in a statement on Friday (10 October) that approval had been finally given by Italian securities and exchange commission, CONSOB to publish the information document for the listing of FCA on the Mercato Telematico Azionario (MTA) in Milan (Italy). It had been announced earlier that week that the MTA had already approved the listing as had the New York Stock Exchange (NYSE; see United States - Italy: 7 October 2014: FCA to be listed from 13 October). At the same time, it also revealed that the Netherlands Authority of the Financial Markets had completed its review of the documentation approved by CONSOB.

It said that the merger would become effective on 12 October, which has been confirmed by a redirection notice on the Fiat SpA website. It is expected that trading of FCA common shares will begin today (13 October) on the NYSE at 09:30 local time. This would then be followed shortly afterwards by trading on the MTA. As a consequence of the merger, the last day of trading of ordinary Fiat SpA shares on MTA, Euronext France and Deutsche Börse (Germany) took place last Friday.

Following the merger of FCA, reports suggest that its largest shareholder Exor, which is also the investment vehicle of the founding Agnelli family, will have an even greater influence on the company going forward, reports Reuters citing a statement from the Italian stock market. According to the news service, Exor which holds 30.04% of Fiat will see its voting stake lifted to 46.6% through a shareholder loyalty scheme put in place as part of the merger. This gives investors which have held on to their stakes for three years the opportunity to obtain two votes for every share they owned. A spokesman for Exor said that its exercised the right on all the 375 million shares that it owns.

Outlook and implications

It has taken over five years for Fiat to finally merge with Chrysler Group after gaining approval from the US Supreme Court to acquire the assets in June 2009 following the US automaker's managed bankruptcy process. After initially holding 20% of the company it subsequently raised its stake in the business through the surpassing of various milestones and acquiring stakes held by the US and Canadian governments, as well as that held by the United Autoworkers (UAW) union. The timeframe for this process may have arguably been quicker were it not for the difficulties between the pair over the pricing of this stake, which was finally resolved at the beginning of the year. Nevertheless, the pair have used this period to redevelop the Chrysler Group's product portfolio into the strongest line-up the automaker has had in years, which has led to a recovery in sales in its key US market as well as broaden its outlook in the rest of the world. Fiat has also heavily benefited from this relationship as it gave it the opportunity to return to North America's mainstream sales categories.

While the listing on NYSE is a positive step for FCA and its ability to tap the US financial markets, it has raised some questions and concerns from the financial community. This includes the weaker news from Ford and General Motors (GM) with regards to their financial forecasts recently, as well as the complexity of the structure of the business which as well as dual listing in the United States and Italy has its company holdings registered in Netherlands and its headquarters in London (United Kingdom). It also still has to adhere to US accounting standards. This could lead to lower demand for shares initially, although this could be addressed as part of a road show to potential investors for the sale of treasury shares to investors that is expected to take place next month (see United States: 10 October 2014: FCA could stimulate share liquidity on NYSE introduction – report) although a final decision is likely to come at the first FCA board meeting at the end of the month.

With this now complete, FCA will now be focusing on hitting the ambitious goals that were laid out during an investor day in May. Under this strategy, the company anticipates that it will grow global consolidated volumes to 6.3 million units and JV volumes to 0.7 million units, up from 4.4 million units in 2013 (see World: 7 May 2014: FCA looks to reach 7 mil. global sales in 2018). Of this, around 1.9 million will stem from the Fiat brand, 1.9 million from Jeep, 1.2 million from the combined commercial vehicle offerings of Ram and Fiat Professional, 800,000 units from Chrysler and Lancia, 700,000 units by Dodge, 400,000 units at Alfa Romeo and around 80,000 units seen by its luxury offerings Ferrari and Maserati. This will also coincide with gains in all its existing key markets, including a rebound in Europe, Middle East and Africa. However, IHS Automotive does not currently expect this plan to succeed, with an anticipation that sales by 2018 will reach 5.1 million units, which would still be an 18.5% gain from 2013 and 14% up on our expected forecast for this year. Although we envisage Chrysler/Lancia coming close to forecast sales and the Fiat and Fiat Professional/Ram brands making improvements, we feel other targets are going to be missed; particularly those for Jeep, Dodge and Alfa Romeo. At this level, the company is highly likely to miss its financial targets and could make investment in its future beyond this point more difficult. It remains to be seen whether there will be any evidence in future that would make us revisit our expectations significantly.