FCAU - Fiat Chrysler Automobiles

[LC]

Interesting writeup on Fiat done by Greenwood:

 

http://www.gwinvestors.com/Main/Blog/Entries/2012/8/24_Fiat_SPA__Love_For_Sale_files/Fiat%20SpA%20Love%20For%20Sale%202012.08.24%20v2.pdf

[DCG]

Posted this in my 'Auto Manufacturers' thread as well, but I opened a position in FIATY yesterday. It looks super cheap to me.

[jmaes]

You also might want to consider Exor (www.exor.com). They hold 30% of Fiat and 30% of Fiat industrial + some other investments. The Mackenzie Cundill funds own it, and Bestinver also owns it.

[Sportgamma]

You also might want to consider Exor (www.exor.com). They hold 30% of Fiat and 30% of Fiat industrial + some other investments. The Mackenzie Cundill funds own it, and Bestinver also owns it.

 

I myself am long exor. They seem to actively manage value, f.e. by separating Industrial from Fiat group and the Chrysler deal seems to have been on very good terms.

 

Because they hold other assets and are levered on the liability side of the balance sheet as well, any upwards movement by Fiat will translate into similar nav gains as holding fiat directly. Also, the exor stock is trading at significant discount to nav (historically they trade with a conglomerate discount, just not that severe), so you get and undervalued stock within an undervalued holding company.

 

http://sportgamma.files.wordpress.com/2012/01/simplemaths.jpg

 

There is a heap of reports on the borsa italia website: http://www.borsaitaliana.it

 

Exor

- http://www.borsaitaliana.it/mediasource/star/db/pdf/87267.pdf

 

- http://www.borsaitaliana.it/borsa/azioni/documenti/societa-quotate/studi-e-ricerche.html?search=Y&lang=en&tipology=null&company=149&sender=null&docDate=&day=&month=&year=&numDoc=

 

Fiat

http://www.borsaitaliana.it/borsa/azioni/documenti/societa-quotate/studi-e-ricerche.html?search=Y&lang=en&tipology=null&company=125&sender=null&docDate=&day=&month=&year=&numDoc=

 

Fiat Industrial

- http://www.borsaitaliana.it/borsa/azioni/documenti/societa-quotate/studi-e-ricerche.html?search=Y&lang=en&tipology=null&company=1188&sender=null&docDate=&day=&month=&year=&numDoc=

 

[jmaes]

There is a heap of reports on the borsa italia website: http://www.borsaitaliana.it

 

Exor

- http://www.borsaitaliana.it/mediasource/star/db/pdf/87267.pdf

 

 

From the link above p.19 it seems like the preferred and savings shares are more interesting than the ordinary.  The only difference is that they are non-voting shares, have a higher dividend, and lower liquidity. As a result they often trade at a lower price than the ordinary shares.

[Sportgamma]

There is a heap of reports on the borsa italia website: http://www.borsaitaliana.it

 

Exor

- http://www.borsaitaliana.it/mediasource/star/db/pdf/87267.pdf

 

 

From the link above p.19 it seems like the preferred and savings shares are more interesting than the ordinary.  The only difference is that they are non-voting shares, have a higher dividend, and lower liquidity. As a result they often trade at a lower price than the ordinary shares.

 

I think you´re mistaken. From what I remember the preferred and saving shares will be converted into common the same way they did with Fiat. I´ll try to find the document later today.

[Sportgamma]

I was mistaken. Exor has not announced anything about converting preferred and saving shares into ordinary. What I read was a passage in a report from Cheuvreux:

"In our view, the simplification of the holding structure would be the best

way for Exor to shrink the holding discount. The planned cancellation of

FIAT/FIAT Industrial non-voting shares could be the first step in this

direction. We believe a similar deal for Exor would have a beneficial

impact on the cost of capital, reducing dividend commitments."

 

However, if a mandatory conversion were to happen, it will most likely not be on a 1:1 basis. In the case of Fiat Industrial the conversion was as stated:

"...at the Extraordinary General Meeting held 5 April 2012, Fiat Industrial shareholders approved a resolution

for the mandatory conversion of preference and savings shares into ordinary shares at a conversion ratio of

0.700 ordinary shares per preference share and 0.725 ordinary shares per savings share;"

http://www.fiatindustrial.com/en-US/investor_relations/advices/FiatDocuments/Annuncio%20La%20Stampa_Fiat%20Industrial_135x420_ENG.pdf

 

In the case of Fiat the conversion rate was higher:

"preference shares will be converted into newly issued ordinary shares according to a conversion ratio of 0.850

ordinary shares for each preference share;

n savings shares will be converted into newly issued ordinary shares according to a conversion ratio of 0.875

ordinary shares for each savings share."

http://www.fiatspa.com/en-US/investor_relations/shareholders/FiatDocuments/Punto5_AssemblAzion_UK.pdf

 

 

[jmaes]

Thanks for the update,

 

I found indeed those conversion rates for Fiat, but couldn't find anything for Exor.

[DCG]

Chrysler September sales up 12% from last year while Ford and GM sales were flat:

 

http://www.usatoday.com/story/driveon/2012/10/02/chrysler-general-motors-gm-ford-us-september-sales/1607997/

 

[jch548]

I'm pretty bullish on Fiat also. There are a number of catalyst that could move the shares substantially higher. Just hitting Marchionne's profit margins for Chrysler could double the shares. Still, Fiat needs to gain 80% control of Chrysler before they can go after their cash flows. I'm wondering if Fiat will need to ask for government assistance in Italy if they bleed for another year.

[Sportgamma]

From the 3q report of Third Avenue:

 

To put it somewhat bluntly, if shareholders must

pay the insiders of holding companies (through their

operating costs), the pay should at least be justified by valueadded

contributions made by those insiders.

Making matters worse, inertia or inaction can take a toll on

shareholder returns that greatly exceeds operating costs. To

illustrate an example of this, we point to a tale of two

European automobile manufacturers, French Peugeot S.A.

(“Peugeot”) and Italian Fiat S.p.A. (“Fiat”). Peugeot and

Fiat share many similarities: both companies are controlled

by holding companies (note: neither of which are held in

the Fund), operate in a very difficult industry that faces

formidable headwinds in the continental European mass

market, have relatively weak competitive positions outside

of Europe, and had generally been long-time beneficiaries

of strong local banking relationships and supportive local

governments. Not surprisingly, the global financial crisis hit

each of these companies particularly hard and exposed them

as not competitive enough on a global scale.

In the depths of the financial crisis, Peugeot’s holding

company remained passive, to our knowledge taking few (if

any) truly aggressive actions to confront its challenges. On

the other hand, Fiat’s holding company, Exor S.p.A.

(“Exor”) has been far more aggressive. Sergio Marchionne,

hired by Exor to be the CEO of Fiat, structured the

acquisition of Chrysler in what we see as a very clever and

opportunistic deal designed to address Fiat’s exposure to the

long-term problems facing the European auto market. In

addition, Exor also oversaw the 2011 de-merger of truck

and agricultural equipment maker Fiat Industrial S.p.A.

from Fiat (Auto), and eliminated the multiple share class

structure at each. Cost cutting at Fiat has been impressive,

helping the carmaker (even excluding Chrysler) remain

modestly profitable in the current environment, while

Peugeot is suffering substantial losses.

The resulting difference in stock price performance has been

astounding; from March 31, 2009 through July 31, 2012,

Fiat common stock generated a total return for shareholders

of over 80%, while Peugeot produced a negative total

shareholder return of -47%2. We provide this example as an

illustration of how important proactive versus passive

management tends to be to the performance of holding

companies and their subsidiaries. Shareholders of Peugeot’s

holding company have suffered as a result of its inactivity

amid crisis, while shareholders of Fiat’s holding company

have benefitted from their bold actions.

 

Of course, taking bold actions can be as harmful to

shareholder returns as they have been helpful in the case of

Fiat; a controlling shareholder that takes aggressive, but

foolish, action could do much more harm than a passive

controlling shareholder. To that point, another of the softer

factors to be weighed in assessing the investment

attractiveness of a holding company is the nature of its

investment activity, principally the quality of the purchase

and sale decisions made by management. Considerable

wealth for shareholders can be, and is, created by shrewd

resource conversion activities.

 

On page 30:

http://www.thirdave.com/ta/documents/sl/TAF%203Q%202012%20Report%20and%20Shareholder%20Letters.pdf

[PlanMaestro]

Marchionne is impressive. I have been hearing his conference calls and interviews, and is truly smart and opportunistic. After reading "Once upon a car" and the way he jumped into the Chrysler restructuring… and became the government's only option… the Jamie Dimon of the car industry.

 

http://www.cbsnews.com/video/watch/?id=7403188n

 

Fiat however faces headwinds and Marchionni needs some lucky breaks to stabilize the turnaround.

 

[Sportgamma]

The exor/fiat chairman, John Elkann is an interesting figure:

 

Special Report: At Italy's Fiat, young scion steers tough course

He was born in New York in 1976 to Margherita Agnelli, daughter of family patriarch Gianni, and Alain Elkann, a journalist from a prominent French Jewish family. His parents split when he was five and his mother remarried and started a new family. By the time Elkann was 14 he had five new siblings, in addition to the two from his mother's first marriage.

 

Elkann lived in Britain and Brazil before attending high school in Paris. (He speaks four languages.) His limited boyhood experience of Turin was summer visits to his grandparents, who lived in a hilltop villa. In 1994 he enrolled in Turin Polytechnic, eschewing his grandparents' elegant home to live in a dormitory room with a shower but no private toilet.

 

"It was a good sign of accepting an almost military attitude of effort," says a former Fiat manager, who asked not to be named. "He showed he could adapt."

 

Two years later Elkann went to the British Midlands to work at a Fiat-owned headlight plant, staying with an English couple who had no idea their lodger was an Agnelli heir. Elkann usually ate dinner from a tray in front of the television, sitting next to the family dog.

 

In December 1997 Elkann's cousin, Giovanni Alberto Agnelli, who was being groomed to run Fiat, died of cancer. Elkann was named in his stead to Fiat's board and designated, at age 22, as heir to the controlling stake. Other company-family traumas followed. In 2002 Fiat nearly went bust. In 2003 Gianni Agnelli died, followed by Elkann's great-uncle Umberto Agnelli in 2004.

http://www.reuters.com/article/2012/11/09/us-fiat-elkann-idUSBRE8A80BB20121109

 

Unlikely heir who saved the family jewels

However, drawing from the lesson of his Birmingham experience, he has not kicked back and done nothing, as many analysts thought he might. Mr Elkann brought in Sergio Marchionne, Fiat’s thrusting chief executive, and gave his blessing to dilute the Agnelli family stake in order to pave the way for the company’s takeover of 20 per cent of Chrysler in 2009, and a later demerger of the group. These deals were unthinkable for previous generations and even other European carmaking families, such as the Peugeots and the Quandts behind BMW.

 

The Agnelli family has reaped the rewards in the subsequent share price rise. And, in recent days, Mr Elkann has taken full control of the family investment company, a firm with €9bn ($12.6bn) in net asset value and more than €1bn of investment firepower, with the intention of making it into a kind of Berkshire Hathaway for the capital goods industry. He wants to expand into the US and Asia.

http://www.ft.com/cms/s/0/0693507a-4830-11e0-b323-00144feab49a.html#ixzz2CI8BGM9C

 

Interview with Gianluigi Gabetti

But Agnelli believed in the dynasty…

 

GG: He definitely wanted one of his descendents to lead Fiat. And that is what happened. After the death of Giovanni Alberto Agnelli, he chose John Elkann as his successor and personally prepared him for the job.

 

He kept him near at home, and introduced him to me and I, in turn, observed that the young man showed a strong interest and had the ability to work hard.

 

We were together for a few years, until I thought the time was ripe to restore to the family the responsibility that I had received, and I retired with a clear conscience.

 

Does John Elkann believe in a Fiat controlled by the family?

 

GG: There is a strong desire of continuity and the family is closer than ever.

 

What about Marchionne, with his edgy style that angers the labor unions, the politicians and now even Volksawagen?

 

Umberto Agnelli wanted him on the Board of Directors of Fiat, John Elkann and I chose him to take the place of Giuseppe Morchio, who did not want to be limited to the role of managing director.

 

We have become fast friends, Sergio and I, we spend hours together and I have discovered his genial side. I can only hope that, with John, they will achieve complete success.

http://www.thisisitaly-panorama.com/top-stories/interview-with-gianluigi-gabetti/

 

John Elkann keynote speech at the 21st summit of the Family Business Network

 

All In The Family

http://www.time.com/time/magazine/article/0,9171,1207766-1,00.html

 

 

[PlanMaestro]

Guy Spier.

 

http://www.forbes.com/sites/halahtouryalai/2012/11/26/best-ideas-2013-show-some-love-for-fiat-the-stock-could-double/

[PlanMaestro]

http://www.fiatspa.com/it-IT/investor_relations/investors/risultati_trimestrali/FiatDocuments/2012/Q3_2012_Results.pdf

 

Chrysler Group and Fiat continue to separately manage their own financial matters, including treasury services

 

 No guarantee, support or similar obligations in relation to other’s financing obligations; no obligation or commitment to provide funding to the other

 

 Financial segregation also supported by legally binding obligations

 

 Chrysler’s May 2011 credit agreement limits financial support to Fiat (inter alia cumulative limit on dividend payments of $500mn payable only if specified minimum liquidity is met)

 

 Fiat’s 3-year RCF also limits financial support to Chrysler (including limits on guarantees and loans)

 

 Chrysler’s financing agreements and its LLC Operating Agreement contain additional restrictions limiting related party transactions, including approval process for material commercial or financial transactions between the companies

 

These restrictions apply, while these instruments are in place, regardless of the percentage of Fiat’s ownership in Chrysler

[PlanMaestro]

From a 2005 VIC write-up, pre-spinoff of the Industrial division.

 

Why believe in Marchionne’s targets?  Marchionne’s track-record has gone somewhat unnoticed by many US investors, as well as European sell-side auto analysts who cover the company, as his past leadership experience has been largely Swiss-based and has ranged widely in sector from aluminum to industrial services to chemicals. Marchionne has successfully taken two companies, Alusuisse and SGS SA from the depths of seemingly inexorable problems, to highly profitable, best-in-class performers.

 

At Alusuisse, Marchionne brought a cash burning aluminum maker with negative operating margins to a 12% margin over 3 years, (exceeding the aggressive targets he had set for himself), split off its chemicals subsidiary (Lonza), and then sold Alusuisse to Alcan at a premium. 

 

At SGS, Sergio inherited an industrial testing company with 5.9% EBIT margins and a host of legacy credibility issues.  In less than 2 years, Sergio took margins to 12%, best-in-class, before leaving to join Fiat.  Both stocks tripled under Marchionne’s leadership.

 

Sergio is not new to analyst skepticism. Not one analyst believes Marchionne will make the targets laid out for 2007, just as no one believed his targets at SGS or Alusuisse. Sergio prefers to achieve his goals and then comment, which seems to leave the analyst community somewhat dumbfounded and skeptical. It may or may not be relevant to readers to see the evolution of analyst skepticism in historical turnarounds, but I have included a timeline of key events in the turnaround at SGS, analyst reaction and share price developments (included at the end).

 

 

[PlanMaestro]

A bit of 2006 history. Still in awe that Ford and Fiat not just survived but prospered from the crisis.

 

Fiat: Italian giant still midway through multi-point turn

By Adrian Michaels

Published: September 27 2006 16:56

http://www.ft.com/cms/s/1/d579d5b6-4e3a-11db-bcbc-0000779e2340.html#ixzz2EsiDqoc0

 

Step one for Sergio Marchionne when he arrived as chief executive at Fiat in June 2004 was hiring and firing. Never has the Italian phrase “cleaning the piazza”, which denotes starting afresh in a seemingly ominous manner, been more appropriate.

 

Mr Marchionne even filled some posts more than once. He obviously was not happy with the appointment he had made in January 2005 of Karl-Heinz Kalbfell to the top of Alfa Romeo, part of the Fiat stable. The following September, Mr Kalbfell was moved on to run Maserati, also part of the group. This month Mr Kalbfell left Fiat completely.

 

“This was an incredibly hierarchical command and control leadership structure,” Mr Marchionne told the FT this year. “I spent a lot of time searching for people who were not just younger in age but were untouched by that [culture] and were ready to engage.”

 

Mr Marchionne moved fast out of necessity. Fiat was in financial peril and leaking €1bn in cash a year. Market share, even in Italy, was moving towards record lows. Not that long ago the company was sexy, an epitome of European cool. But it lost that reputation amid the production of dull cars.

 

Mr Marchionne had pressing balance sheet issues to fix along with the changes in personnel. A relationship with General Motors had gone sour and the two were arguing over an agreement that could have seen the US company forced to acquire the lossmaking Fiat Auto. That was resolved in Fiat’s favour early in 2005. GM paid Fiat €1.55bn to be able to walk away.

 

Fiat also cut its debt when it enforced a deal with bank lenders to exchange €3bn of debt for shares in the company. Three Italian banks still own 14 per cent.

 

The GM agreement had a crucial effect beyond the balance sheet. Mr Marchionne has seized the chance to forge partnerships with a number of other manufacturers.The alliances involve the sharing of the risks and costs of development of new models. They go some way towards answering criticism that Fiat can no longer survive on its own and must merge with a rival.

 

Fiat will be sharing a platform with Ford to develop a new “Cinquecento”, the iconic miniature Fiat of 40 years ago beloved of film buffs. Ford will develop a new generation of its Ka.

 

Fiat has also expanded its alliance with Peugeot of France, forged deals with India’s Tata, and with Suzuki and Severstal. Iveco. Fiat’s truckmaker, has just agreed a joint venture with SAIC in China.

 

And, finally, it has a major success on its hands. The company’s launch of its new Punto small car has been a hit, helping Fiat Auto record a small trading profit for the fourth quarter of 2005 after more than four years of quarterly losses.

 

Mr Marchionne has been methodically dealing with the issues one at a time. After Fiat’s own models had been addressed, he starting to talk aloud about a crisis at Alfa Romeo, where he saw a car marque aiming unsuccessfully to compete both against large BMWs and small Volkswagens. [RR: entering the USA in 2013]

 

Then he started to shake up CNH, the company’s agricultural and construction machinery arm. CNH has been profitable but its performance has lagged behind competitors. [RR: was spinned-off Fiat Industrial]

 

Lancia, the long-neglected marque that is also in the Fiat stable, came next. Lancia, among other things, is to be relaunched in the UK in 2008.

 

Investors are relatively happy about Fiat’s prospects, considering that between 2001 and 2004 the company lost almost €8bn. Fiat shares have leapt in the past year, and this month hit a four-year high.

 

But all that does not mean survival is guaranteed. The company has to show that it can follow the success of the Punto with more hit models. It is soon to replace its staid Stilo car. The new Cinquecento could be crucial.

 

And analysts are divided on whether the strategy of sharing production and development costs will help Fiat stay on its own in the long run. Philippe Houchois, analyst at JP Morgan, says: “Peugeot has been optimising its cost base and has still run into trouble.

 

“I think Fiat should take advantage of its current strength to sell its car business or move into a joint venture where it does not have control.”

 

That for now may be beyond Fiat’s thinking, but it is something for a new boss at Fiat Auto to ponder when appointed. Mr Marchionne is for now chief executive both of the group and Fiat Auto but is expected to step back from the car division soon.

 

Meanwhile the company would like to regain its investment grade status, last seen in 2002. Its May €1bn bond issue was almost priced as investment grade, analysts say, and a boost to its rating would significantly strengthen the company.

 

[PlanMaestro]

Good long interview with Marchionne.

http://www.youtube.com/watch?v=Q39ZywbcfN8

 

 

 

[PlanMaestro]

5 year plan.

http://www.fiatspa.com/it-IT/investor_relations/investors/presentazioni/FiatDocuments/2010/Fiat_Analyst_investor_day_21_04_10/The_5-year_plan.pdf

[PlanMaestro]

Chrysler named 2012 Marketer of the Year by Advertising Age

http://www.autonews.com/article/20121126/RETAIL03/121129930#ixzz2EzVE23wo

[txlaw]

So what you're telling me, Plan, is that I should look into Fiat.

 

Damn, yet another potential investment to look into.  I'm sick of all of these opportunities presenting themselves.

[PlanMaestro]

LC, DCG and Sportgamma raised the idea. Though, since I spent the whole afternoon reading your good SHLD posts, I had to give back the favor.

[PlanMaestro]

VEBA call option.

http://www.4-traders.com/FIAT-SPA-69342/news/Fiat-rebuts-report-will-raise-funds-for-Chrysler-buy-15594619/

 

––––––––––––––––––––––––––––––

 

Fiat could sell parts unit for cash to buy Chrysler: Marchionne

http://www.4-traders.com/FIAT-SPA-69342/news/Fiat-SpA-Fiat-could-sell-parts-unit-for-cash-to-buy-Chrysler-Marchionne-15595764/

 

At a brief, impromptu news conference, Marchionne said Fiat has no need to tap the debt or equity markets to raise cash to purchase remaining Chrysler shares. Fiat owns 58.5 percent of the No. 3 U.S. automaker. While Fiat has ample cash on hand, he added, it could raise additional money if needed by selling assets, citing Magneti Marelli, which had revenue of 5.8 billion euros ($7.6 billion) last year, as an operation that could be sold. In the current weak economic environment, Marchionne said, "the availability of cash is crucial. It's better to be safe than sorry."

 

Magneti Marelli employs about 35,000 people worldwide. The unit designs and produces automotive components including lighting, electronics, suspension and exhaust.

 

––––––––––––––––––––––

 

Fiat CEO: plan to buy Chrysler shares

http://www.reuters.com/article/2012/12/14/us-fiat-chrysler-idUSBRE8BD0WG20121214

 

"We've always taken the position that we would have to pay them, but the question is price," said Marchionne, speaking on the sidelines of a meeting of the Council for the United States and Italy, an international-relations group. The current arbitration proceedings, he added, are "part of the dance".

 

If, as industry experts predict, the two sides cannot agree on a price by year-end, the trust fund can begin the process that would lead to an initial public offering of its shares, potentially depriving Fiat of its goal of gaining full ownership of Chrysler. However, the IPO process would take months to meet regulatory and other requirements, and a settlement could be reached during that time.

 

UBS estimates the fair value of Chrysler at between $9 billion and $13.4 billion, meaning the trust fund's 41.5 percent stake is worth between $4.1 billion and $5.5 billion.

 

 

––––––––––––––––––––––––––

 

Marchionne says Fiat will buy Chrysler shares, but expects more wrangling

http://www.autonews.com/apps/pbcs.dll/article?AID=/20121214/COPY01/312149851/marchionne-says-fiat-will-buy-chrysler-shares-but-expects-more

Earlier this week, Fiat asked the Delaware court to make a ruling on a series of legal briefs instead of holding a trial, according to a court document seen by Reuters. The UAW's VEBA must reply to Fiat's arguments by Jan. 25, and Fiat will file its reply on Feb. 28.

 

A judge is therefore unlikely to make a ruling on whether the case will go to trial until he has heard all the legal arguments from both sides, which won't be until March at the earliest.

 

Fiat would be unlikely to move forward with raising cash to buy the remaining 41.5 percent stake before a judge rules on the price it must pay for the 16.4 percent. "As long as the pricing of the Chrysler option has not been confirmed it will likely take until late 2013 before the courts reach a decision on the VEBA trust action," Credit Suisse said in a note to clients today. "The bottom line is that no acquisition will be possible until then," it said.

[PlanMaestro]

Two screenshots from the report LC posted to start this thread:

 

http://farm9.staticflickr.com/8058/8272467251_8ce950d8ce.jpg

 

 

http://farm9.staticflickr.com/8487/8262555755_9eb8cfc462.jpg

 

And another:

 

http://farm9.staticflickr.com/8059/8273191171_fd55493982.jpg

[txlaw]

LC, DCG and Sportgamma raised the idea. Though, since I spent the whole afternoon reading your good SHLD posts, I had to give back the favor.

 

I will certainly read this thread when I have the chance.  Thanks to you guys who posted on Fiat.

 

You know, I went back and looked at some of my SHLD posts earlier today, and I couldn't help but chuckle when I came across Peter Burke CEO bashing me for my "grand elaborate plan" for SHLD and insisting that ESL buy back SHLD bonds.