Sergio Marchionne Wants To Merge With General Motors
Fiat Chrysler Automobiles CEO Sergio Marchionne hasn’t been shy about his desire to see his company merge with General Motors, and has resorted to some unusually aggressive tactics to get what he wants.
First, came an email in March addressed directly to G.M. CEO Mary Barra, first reported by The New York Times, in which Marchionne outlined why it’s so essential for automakers to consolidate in the interest of cutting costs. Manufacturers spend billions independently developing duplicate technologies, and Marchionne reasons that loads of cash could be saved if companies merged or at least collaborated more — not an unreasonable line of thinking.
But G.M. wasn’t interested. Barra initially joked that she never got the email, saying that it may have gone to her spam folder, but later addressed Marchionne’s proposal. "There was an email that was very much vetted with management and our board," she told reporters before G.M.’s annual shareholder’s meeting. "And after we reviewed that, we are committed to our plan. We think that’s in the best interest of General Motors shareholders, and we have strong support."
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G.M. hasn’t ruled out the idea of collaboration, but stops short of using the “M” word. The company is currently working with Ford on transmissions and Honda on hydrogen fuel cell technology. "We look and seize those opportunities where and when it makes sense," Barra said.
Instead of cutting his losses and heading home, Marchionne doubled-down by taking the unusual step of dedicating an entire analyst conference call on April 29 to selling the idea of a merger.
Instead of cutting his losses and heading home, Marchionne doubled-down by taking the unusual step of dedicating an entire analyst conference call on April 29 to selling the idea of a merger. “I think it is absolutely clear that the amount of capital waste that’s going on in this industry is something that certainly requires remedy,” Marchionne told analysts. “A remedy in our view is through consolidation.”
It’s highly unusual for a CEO in any industry to be this candid about mergers, and Marchionne’s apparent desperation has made some investors nervous. This was reflected in a 10-percent drop in FCA stock value over the following two days.
But Marchionne still isn’t shying away. The Wall Street Journal reported earlier this week that the FCA boss was drafting hedge funds and activist investors at G.M. who shared his goals to try and not-so-subtly leverage G.M. into a merger. FCA has yet to make any official statement on the matter, but Marchionne reportedly has convinced a few G.M. investors that his way is the best way forward. Still, this fringe element will likely have a hard time convincing the masses to go along.
Why it matters
Marchionne was responsible for engineering the Fiat-Chrysler merger, which essentially saved both companies. FCA is now profitable, but operating margins are still thin, meaning an economic downturn, combined with increasing development costs could undo all the good work he’s done. He clearly sees something he likes in G.M., but we have to wonder how much more public rejection he can take before shareholders start jumping ship. As unusual as his tactics seem, a merger is something he sees as essential, and I would be surprised if he hasn’t already started emailing other car company CEOs.
Source: Detroit News