Fiat and Chrysler Merge: A Watershed Moment in the Car Industry

Strategic Insights -

Sergio Marchionne's relentless pursuit of a deal to merge Fiat and Chrysler has finally yielded a full merger, creating a global force in the car industry. The deal, which allows Fiat to buy the remaining stake in Chrysler from the unions' Veba healthcare trust for $4.35bn, is a watershed moment in the resuscitation of the carmakers. Analysts say the deal secures Fiat's operational and financial future, making it a major player in the industry.

Key Takeaways:

  • The merger creates a global force in the car industry, with a combined production of 4m vehicles in 2012.
  • The deal allows Fiat to access Chrysler's $12bn of net cash and avoid a listing of Chrysler that would have slowed integration.
  • Fiat's stock has risen nearly 60% in 2013, and shares rose as much as 16% on the news of the merger.
  • Max Warburton, an analyst at Bernstein Research, says the costs and financing of the deal were more favorable to Fiat than the market expected.
  • Fiat's need for Chrysler has been clear since 2004, when it was brought back from the brink of bankruptcy by Mr. Marchionne.
  • Chrysler has sustained Fiat's profits amid a deep recession and steep losses in Europe, with group net income equaling €1.4bn in 2012.
  • Without Chrysler, Fiat would have posted a €1bn loss in 2012.
  • Mr. Marchionne has argued that the merger will speed the ability to share technology and financing between the two groups.
  • Fiat's plans for substantial investment in its ailing Italian plants to use them to export also depend on its access to Chrysler's $12bn of net cash.

Statistics:

  • Fiat's stock has risen nearly 60% in 2013.
  • Shares in the Italian carmaker rose as much as 16% on the news of the merger.
  • Group net income equalled €1.4bn in 2012.
  • Without Chrysler, Fiat would have posted a €1bn loss in 2012.
  • Chrysler and Fiat combined produced 4m vehicles in 2012.
  • Fiat's net cash is expected to rise to $10bn on completion of the transaction.
  • Fiat's net debt is expected to rise to €10bn, making it the most indebted carmaker in Europe.

Sources:

  • Fiat
  • Chrysler
  • Bernstein Research
  • Banca Akros
  • Max Warburton, analyst at Bernstein Research
  • Philip Watkins, car analyst at Citi
  • Henry Foy
  • FT.com (www.ft.com/cars)