Published On: Wed, Jan 29th, 2014

John Elkann’s Merged Fiat Chrysler Now Born Again : New York Stock Exchange Primary Listing Coming


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On January 1st, 2014 Fiat reached agreement with the American United Autoworkers retiree health care fund, Veba, to purchase their remaining shares of Chrysler, permitting them to own 100% of the company.

Fiat agreed to buy the 41% of Chrysler it did not already own for US$4.35 billion, to be funded initially by a cash payment by Fiat of US$1.75 billion and a cash payment by Chrysler by way of a special dividend of US$1.9 billion. Chrysler also agreed to pay the trust a total of a further US$700 million, in four annual installments, as well.

John Elkann, Chairman of Fiat and Chairman and Chief Executive Officer of Exor, the family holding company, said when the deal was announced, “I have been looking forward to this day from the very moment that we were chosen to assist in the rebuilding of a vibrant Chrysler back in 2009.”

Fiat  Chrysler Logo

New Fiat Chrysler Corporate Identity

That deal finally closed a few days ago and now the hard work of integrating the two auto companies begins. Managing the cross cultural implications of such an international grouping has, so far, been accomplished much better by Fiat Chairman John Elkann and CEO Sergio Marchionni, than when Germany’s Daimler Group previously had owned Chrysler.
However now comes the tricky bit as the two entities now have to fully become one, in order to meld the far flung and diverse segments of the business into a fully integrated global operation, and one which is the seventh largest car maker in the world at that.

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New Maserati Ghibli

Italian political sensitivities aside, we heard today that the legal status of the Fiat Group will be moved to the Netherlands, its tax residence will move to the United Kingdom, its primary share listing will be moved from Milan to New York and its main operating headquarters – the important bit – will effectively be in Detroit rather than Turin. This is a complex reorganization which may take most of the year to accomplish, though the New York listing is expected to occur by October 1st. Much of the complexity relates to international tax issues one can infer, using what some call as an English-Dutch open sandwich….

Fifty years ago Fiat employed around 100, 000 people in Italy, which is down to only about 18, 000 today only 70% of whom have recently been working regularly, with the rest on extended lay-off.

When previously asked recently about moving the company’s headquarters, Sergio Marchionni had actually then deflected the question, quite deftly, by wondering what difference it made – as far as he was concerned, he said, he is always on an airplane anyway.-

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Ferrari La Ferrari

But of course symbolically it does make a difference. Easing the pain of the new arrangements however, some of Fiat’s furloughed Italian plants are already beginning to hum again making large Maserati sedans for export to China and the US, using Chrysler derived engine blocks and platform underpinnings.

And there is the prospect of much more to come too, beginning with designing smaller Jeeps to be manufactured in Europe for European and export markets. The Alfa Romeo brand will, finally, be resurrected and also be made at home in Italy for export to the US.

Jeeps will also be assembled in Brazil for the local market there, and likely in China as well as Jeep becomes truly a global brand.

This is Fiat’s best shot at becoming a world player again and everybody seems to realize it, though the local Italian media have tried to make hay out of it even so.

Accordingly the overall political response from the Italian Government to the merger and issues of where to put the head office, and even the workers’ response, has been muted.

Yesterday, Fiat Group issued its fourth quarter financial results for 2013 which fell a little short of expectations. Fiat has cut its guidance for the 2014 year ahead as well, as economic problems in Brazil, one of its few existing major international markets, affected both its results for the quarter and the forward outlook.

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New Jeep Cherokee

Accordingly the company reported a trading profit of US$1.27 billion (Euros 931 million) for the quarter compared with a (restated) trading profit of US$1.2 billion (Euros 887 million) in the same quarter of the previous year, down significantly from prior expectations.

The company now apparently expects a 2014 trading profit range, also revised downwards, of about US$4.9 to 5.4 billion (Euros 3.6 to 4.0 billion) for the full 2014 year. This is down about 25% from earlier guidance. Given there is plenty of work to do in integrating the two companies, it is smart to lower initial expectations anyway. If the hard work should all pay off early, then so much the better.

In light of these results, to save cash the company has passed on declaring a dividend as well. It is also quite likely some form of new financing will take place in the months ahead as well, likely of convertible bonds, to reduce the financial leverage taken on to buy out the remaining Veba shares of Chrysler – even the special dividend from Chrysler becomes a burden to the consolidated balance sheet of the newly merged company now. A number of existing loans will also be refinanced to provide longer maturities, and the new Fiat-Chrysler plant in Pernambuco will have significant 80% subsidized financing from government sources.

Fiat Chrysler will now need every cent they can find to launch a massive programme of new product initiatives, in order to modernize their model range across the board and become world-class in every sphere and internationally competitive.

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New Alfa Romeo 4C

This is the goal of the whole exercise, which therefore now presents John Elkann and Sergio Marchionni with a unique opportunity to deliver the goods, one they are both competent to seize and to fully make good on, I suspect – carpe diem.

 

John Elkann was born in New York, United States, the first son of Alain Elkann, a journalist and Margherita Agnelli, daughter of Gianni and Marelli Agnelli,

As a boy, Elkann lived in the UK as well as Brazil, attending high school in Paris, and University in Italy, which meant that he became and has remained totally fluent in four of the leading European languages, Portuguese, English, French and Italian. Elkann graduated from the Politecnico di Torino with a degree in management engineering in 2000.

By the time of his graduation, Elkann’s future had already been mapped out for him, with his paternal grandfather Gianni Agnelli having decided that John was the one who would be given the role of chairman of the family business empire after his nephew, heir-designate to the Fiat automobile empire presided Giovanni Alberto Agnelli, passed away from a rare form of cancer when aged just 33 in 1997. Giovanni Agnelli was the sake of the original founder of  Fiat, who established the company in 1899.

In the wake of the tragic premature passing of Giovanni, and with his own health failing, Gianni Agnelli picked out John Elkann to be his successor, when he was just 24 years old.

After gaining considerable experience working in various industry sectors, John Elkann joined Exor in 2002, and when his grandfather Gianni Agnelli passed away in 2003, and his great-uncle Umberto Agnelli the following year, Elkann was promoted to the role of Vice Chairman of both Fiat and Giovanni Agnelli and Company, the family partnership which controls Exor.

In 2010, John Elkann was named as Chairman of Fiat and Exor at the age of just 34.

 

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