The Business Times

Fiat Chrysler crowns merger with Wall Street debut

Published Mon, Oct 13, 2014 · 11:38 AM

[Milan] Fiat Chrysler Automobiles (FCA) makes its Wall Street debut to great fanfare on Monday, shifting the carmaker's centre of gravity away from Italy and capping a decade of canny dealmaking and tough restructuring by CEO Sergio Marchionne.

The world's seventh-largest auto group has sought the US listing to help to establish itself as a leading global player through access to the world's biggest equity market and the cheaper, more reliable source of funding it ultimately offers.

But Marchionne has picked a difficult moment to woo US investors. Analysts think the US auto industry is nearing a peak, while Europe is struggling to recover from years of decline and growth in China and Latin America has slowed. "Only those willing to accept the risks of a highly leveraged turnaround situation in a competitive, capital-intensive, highly cyclical industry should consider investing," said Richard Hilgert, an analyst at Morningstar, in a note.

Marchionne will ring the closing bell at the New York Stock Exchange on Monday to mark the milestone for the 62-year-old chief executive who revived one of Italy's top companies and helped rescue Chrysler along the way. "We're predominately a US automaker with operations in foreign countries. I want this to be a US-listed company,"Marchionne has said. Half of FCA's sales are in North America.

Fiat took management control of bankrupt Chrysler in 2009 and completed its buyout this year. It is now combining all of its businesses under Dutch-registered FCA, which will have a UK financial domicile and small London headquarters, with operations centres in Turin and Detroit.

Wall Street is the first item on an ambitious agenda for the next five years as Marchionne gears up for the launch of dozens of new models, from funky Fiat 500s to sporty Maseratis.

The target is a 60 per cent boost in sales to seven million vehicles and a fivefold increase in net profit to as much as 5.5 billion euros (US$6.9 billion) by 2018 - the year Marchionne has said he would step down as CEO after seeing through his plan.

FCA's growth plans won't come cheap, though, and Marchionne will need to be at his persuasive best if analysts are right with predictions that the group will need to raise more capital to pay for his 48-billion euro investment plan.

DETROIT POWER STRUGGLE In comparison with GM and Ford, FCA is seen as less attractive because of its ageing model line-up, high debt, weaker margins in North America and its small presence in China. "Ford and GM also offer much stronger cash generation and balance sheets, and are thus in a position to return cash to shareholders, while FCA still needs to raise capital," Exane BNP Paribas analyst Stuart Pearson said in a note.

FCA will decide on future financing options this month, though Marchionne insists it does not need a capital increase.

But some analysts think FCA is a good long-term bet because of its potential in the fast-growing premium segment of the market with brands such as Alfa Romeo, Ferrari and Jeep. "Jeep's re-entry into China will provide Fiat with a turbo boost to its share of the market," Morningstar's Hilgert said.

One US investment banker said the true test for FCA would come once it seeks to access US capital markets. "Now would be the worst possible time to ask investors for money," he said.

John Casesa, senior managing partner at Guggenheim Securities, said investors would need to weigh the prospects of huge cost savings from integrating Fiat and Chrysler, with the risk that the autos market peaks in the next few years.

Marchionne hopes to see more than half of FCA stock changing hands in New York instead of Milan, but appetite will take time to build, especially as FCA has yet to switch to US accounting principles and to reporting results in dollars.

Marchionne will hit the road next month to spread the word. FCA may also sell treasury shares and other stock after the listing in an attempt to boost trading volumes.

He believes that FCA's cause will be aided by Chrysler's brand strength in the United States, now the main profit centre for the combined group. FCA sold more cars in North America last month than Toyota, the world's largest automaker.

The stock opens at 1330 GMT in New York and shortly afterwards in Milan, where the group will keep a secondary listing. Monday's opening price will be benchmarked against Fiat's previous close of 6.94 euros (US$8.76). REUTERS


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