Wednesday, 6 August 2014

Chrysler on comeback trail, but doubts linger about Fiat merger

Otmane El Rhazi from CBC | Business News .

Fiat Chrysler

Chrysler remained on the comeback trail with a 22 per cent second-quarter profit increase, but its planned merger with Fiat is looking doubtful.

Shareholders of Fiat, the majority owner of Chrysler, overwhelmingly voted last week to merge the two companies. But on Wednesday, Fiat shares fell 5.5 per cent in Italy due to concerns that the merger could be derailed by investor flight.

The merger would move the new company's tax headquarters to London and list its shares on the New York Stock Exchange. It could be completed by mid-October.

But one important hurdle remains. Italian law gives dissenting shareholders the right to cash out. If they require the company to buy back stock worth more than 500 million euros, the merger is off.

Fiat shares hit

The Italian market drop reflects concerns that the payout, which has been set at 7.727 euros a share, or 16 per cent above Wednesday's close, will exceed Fiat's ceiling.

Sergio Marchionne, CEO of both companies, said Wednesday that fear of the merger being scuttled is overblown. If it doesn't happen, joint operations would continue, and Fiat would return with another proposal when conditions are more favourable, he said.

"I am absolutely unfazed by all of this," said Marchionne. Marchionne's comments came after Chrysler reported a relatively strong performance for the quarter, with profits fuelled by rising U.S. sales. The company made $619 million, compared with $507 million a year ago. Revenue rose 14 per cent to $20.5 billion.

But Marchionne also said he was not satisfied with the results, indicating that the next phase of Chrysler's revival would be to improve its profit margin — the per cent of revenue that it gets to keep.

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