Fiat Chrysler’s Fail Merger Attempt
Why FCA’s Sergio Marchionne’s Campaign for a Merger with General Motors Might Fail
With Fiat Chrysler Automobiles CEO, Sergio Marchionne continuous efforts to pull off a cross-border deal with GM, activist shareholders in GM have flatly rejected the advances to push for a merger between the two companies.
This comes even after the FCA boss blatantly sending an email to GM’s CEO, Mary Barra earlier this year indicating an interest in collaboration between the two automakers. But what could be the reason for GM to brush off this deal? Here are some of the factors.
General Motors Opposed Management
Although the FCA boss is reportedly said to be talking to large GM shareholders, it is clear that FCA’s pursuit is not playing out so well following Barra’s objections to negotiate the deal. For this reason and considering how a merger battle would play out, the position of General Motors, management is critical if Marchionne is to win the battle.
This means that FCA will have to wrestle the significantly bigger GM to push the merger forward. Meanwhile, GM will certainly correspond to its major shareholders about its position on the merger, which turns out to be a difficult task.
Hedge Fund Opposition
When a company’s board of management is opposed to a merger, only activist forces from major shareholders can turn the tides. But Fiat Chrysler is not getting enough GM’s shareholder support to launch its hostile bid. In fact, so far there have been little debates of a push to unite the two vehicle manufacturers from GM’s major shareholders.
General Motors Deferred Tax Assets (DTA’s)
Despite their capability to save businesses of billions of dollars in future taxes, DTA’s are often overlooked. In the case of GM, the carmaker has 34 billion dollars in DTA’s stemming its losses from financial crisis.
Although IRS granted an exception allowing the DTA to remain intact despite GM’s previous ownership changes, the DTA could become impaired if the merger deal goes through. This means that the current GM shareholders would have to hold less than half of the new entity’s share.
Management’s Personal Interests
Usually, when firms merge, not all executives can hang around, at least not in their existing positions. This means that if the FCA-GM goes through, some of GM’s executives would likely lose their jobs including the CEO, Mary Barra unless they opt to share the CEO positions.