Fiat investors approve Chrysler merger

By Agnieszka Flak

TURIN Italy (Reuters) – Fiat shareholders approved the Italian carmaker’s merger with its U.S. unit Chrysler on Friday, paving the way for a U.S. listing which the world’s seventh-biggest auto group hopes will help fund an ambitious turnaround plan.

Fiat Chief Executive Sergio Marchionne completed the full buyout of Chrysler earlier this year and wanted to incorporate the businesses as a Dutch-registered combine, Fiat Chrysler Automobiles (FCA). The vote to create FCA was approved by the required two-thirds majority of shareholders present.

Around 8 percent of all of Fiat’s investors voted against the merger and should enough of them exercise their rights to sell out within two weeks, the merger could still fail.

Marchionne thinks the chances of the merger now failing are slim and he is counting on the U.S. listing to help foot the bill for a 48 billion euro (38.29 billion pound) plan to grow net profit five-fold and sales by 60 percent by 2018.

Marchionne helped rescue Chrysler in 2009 and turned the U.S. firm into a key profit centre for Fiat, although quarterly results released on Wednesday disappointed.

The creation of FCA will help Marchionne ease his reliance on Europe and could convince investors that FCA can rival General Motors and Ford Motor Co.

“With today’s meeting begins the future of our company,” Chairman John Elkann, the grandson of late Fiat patriarch Gianni Agnelli, said at the start of the last shareholder meeting likely to be held in Italy.

The merger plan had raised concerns it would tighten the grip on the company by main shareholder Exor, the holding company of the Agnelli family, via the creation of a scheme to reward long-term investors.

FCA is expected to be headquartered in London and have its tax domicile in Britain, Fiat has said, cementing a politically-sensitive shift away from Italy, its home of the past 115 years.

Fiat, considered by many as an Italian national champion, is one of the country’s main employers, with 62,000 staff there.

Many are still on temporary layoff schemes as plants have been running at low capacity after car sales in Italy and Europe fell to historic lows and are only slowly being ramped up.

Italian labour unions and politicians have been concerned about potential job cuts, but Fiat said the merger would have no impact on jobs in Italy or elsewhere.

EXIT RIGHTS

Investors will receive one FCA share for each Fiat share they hold. Most will also be eligible for special voting shares.

Investors who voted against the merger are entitled to cash exit rights of 7.727 euros per share. Should the total sum that needs to be paid for those rights to shareholders and creditors exceed 500 million euros, the merger will fail, Fiat has said.

Marchionne said on Friday he and Elkann were confident that many of those who voted against the merger on Friday were likely to remain shareholders.

Even if enough sold out, Fiat said their shares would first be offered to existing shareholders and if those investors took up the offer the shares would no longer count as exit shares.

The outcome of the operation will be known by early October.

Marchionne said he will not attempt a U.S. listing for Fiat alone but only once FCA had been created.

The creation of FCA will not lead to significant operational cost savings or synergies, Fiat has said, and failure to get the final OK for the tie-up would have little operational impact.

However, a rejection would likely “prove embarrassing for Marchionne and may result in higher financing costs going forward,” Arndt Ellinghorst, a London-based analyst at investment researchers ISI Group, said in a note.

Proxy advisory firms ISS and smaller peer Frontis Governance advised against the merger, saying it would reduce shareholder rights and boost Exor’s influence, while Glass Lewis, said the move’s benefits outweighed the risks and on balance it was “in the best interests of shareholders

Exor owns 30 percent of Fiat, but its voting power could rise to as much as 46 percent via the loyalty scheme put in place as part of the merger to reward long-term investors.

Elkann confirmed his family’s commitment to Fiat, “even more so now that there are big opportunities on the horizon”, denying rumours that the Agnellis would sell down their stake.

(Editing by Mark Potter and Elaine Hardcastle)

Fiat investors approve Chrysler merger