General Motors activist shareholders go cold on Fiat tie-up
Hedge funds more interested in cutting costs than complex merger transaction
Activist shareholders in General Motors have said they will not push for a merger with Fiat Chrysler Automobiles, pouring cold water on Sergio Marchionne’s efforts to pull off an unlikely cross-border deal.
Mary Barra, chief executive of GM, this month acknowledged that Fiat Chrysler had made formal contact with its bigger rival, proposing a merger of the two carmakers. But she said her board had decided such a deal was not worth pursuing.
Attention has subsequently focused on GM’s investors. Unlike many global carmakers, the Detroit company lacks a large “anchor” shareholder such as a family or state sponsor and it came under attack from activists earlier this year.
Several hedge funds, including Taconic Capital and Appaloosa Management, pressed the carmaker into committing in March to buy back $5bn in shares.
But four people familiar with the matter say that activist contingent, which controls about 1.5 per cent of GM’s common shares, is now more interested in cutting costs than embarking on a complicated merger transaction.
“Marchionne is right — consolidation makes sense,” said a person close to the hedge funds. “But [the investors] are not sure that this particular consolidation makes sense.”
GM has been working for several months with Goldman Sachs and Morgan Stanley bankers on dealing with the activist hedge funds, said people familiar with the company. But they stressed that Goldman and Morgan Stanley were not hired to focus directly with the Fiat Chrysler issue.
“On the face of it, everybody says this is a bad idea,” said a person close to GM. “When you think about the profile of the FCA business, there’s a sense that it’s not the GM shareholders’ job to bail out the FCA shareholders.”
GM and Fiat Chrysler declined to comment. Taconic declined to comment. Appaloosa did not respond to requests for comment.
Mr Marchionne, chief executive of Fiat Chrysler, has openly called for consolidation in the car industry as a way to share the heavy costs of developing environmentally friendly vehicles, connected car technologies and self-driving features. He is understood to be working with UBS, a longstanding adviser to the company, on potential combinations.
People close to Mr Marchionne said he had considered launching a hostile bid for GM but was unlikely to pursue such a difficult move. Several people familiar with the situation said that Mr Marchionne had not directly engaged GM investors over potential merger talks.
Analysts have been quick to point out that Fiat Chrysler might not be the most attractive merger partner, given its limited profitability, high level of debt and significant investment needs.
The car industry has had its fair share of failed tie-ups, including that of Daimler and Chrysler. GM itself paid $2bn in 2005 to end an agreement to buy Fiat’s automotive business.
Still, proponents of a deal point out to a high degree of overlap between GM and Chrysler’s North American product ranges as well as potential synergies from sharing distribution networks.
Exor, the Agnelli-family investment vehicle that controls Fiat Chrysler, is in the middle a complex unsolicited takeover battle to acquire PartnerRe, a US reinsurance company. It is likely to want to complete that before embarking on another complex deal, said one person close to the family.
GM, still reeling from a year of record recalls in 2014, says it is focused on its near-term financial targets. By 2016, the company wants to have achieved an adjusted operating margin of 10 per cent in North America — versus 8.8 per cent in the first quarter of this year — and brough its European business back to profitability.
