Hyundai Motor Group CEO Chung Mong-koo is waiting for an expected decline in Fiat Chrysler Automobiles shares before launching a takeover bid for the Italo-American automotive group, sources close to the situation said.
The Hyundai bid will be launched sometime between this summer and prior to the Fiat-Chrysler annual shareholders’ meeting in May 2019, when Sergio Marchionne formally steps down as CEO.
The key driver for the Fiat Chrysler Automobiles and Hyundai Motor Group merger will be Elliott Management principal Paul Singer, who is an activist shareholder in Hyundai and major player in Italian equities with the fund’s stake in Telecom Italia and de facto owner of Silvio Berlusconi’s AC Milan soccer club.
Having already amassed a US$1-billion stake in Hyundai, Elliott Management’s Singer has given himself an inside track into FCA by naming Fiat Chrysler CEO (Europe, the Middle East and Africa) Alfredo Altavilla as a board member of Telecom Italia.
Marchionne personally triggered Hyundai’s interest in creating the world’s largest automotive group by using potential interest by China’s Great Wall Motor Co as a stalking horse, sources close to the situation said.
Marchionne’s aggressive pursuit of a merger partner for FCA is due in part to industry overcapacity and pressure on the part of Fiat’s controlling shareholders, the Elkanns and Agnellis. FCA chairman and family patriarch John Elkann is much more interested in the news media space than in automobiles. Elkann recently took over the controlling stake in The Economist Group from Pearson PLC and is a potential bidder for the New York Times Company.
“In fact, John Elkann’s office in London is inside the Economist building,” one source noted.
Notwithstanding carefully choreographed responses during the FCA Capital Day presentation of the company’s five-year plan in Balocco, Italy – there is sharp and serious disagreement between Elkann and Marchionne over who will take over FCA after Marchionne’s departure.
“Marchionne is pushing for [FCA CFO] Richard Palmer, while Elkann wants an industrial CEO to take over such as Altavilla or [Ram/Jeep head] Michael Manley,” an FCA insider said.
However, Fiat Chrysler watchers said they do not believe Elkann has the ability or the desire to run the Fiat Chrysler Automobile empire once Marchionne has left the company. In fact, a mega-merger with Hyundai is a more palatable option for Elkann, who oversees the family’s interest through the financial holding, Exor.
“Elkann is well aware that Fiat Chrysler is going into a perfect storm. Lack of new models, mediocre technology in relation to peers and no real EV [electric vehicle] strategy, all on top of rising oil prices,” the FCA insider said.
Marchionne is uniquely transparent in telegraphing his intentions to the market. His aggressive pursuit of General Motors CEO Mary Barra is meant to show FCA’s determination to find a good merger partner and at the same time illustrates Marchionne’s understated sense of humor and passion for making mischief.
Fiat was only saved from imminent collapse by then-GM CEO Rick Wagoner, who was forced to fork over US$2 billion in cash to Sergio Marchionne to get himself out of a shotgun marriage with Fiat Auto in 2005.
While company insiders say an FCA/Volkswagen merger would make the most sense but such a deal would face impossible opposition in Germany and Italy due to automotive plant closures and questions concerning VW’s willingness to consider such a merger after its internally traumatic diesel-engine scandals in the US and Europe.
Jim Trainor, a Hyundai spokesman in the United States, says the company does not comment on market rumors. HMG, the world’s fifth-largest automotive manufacturer, owns the Hyundai and KIA automotive brands that operate US manufacturing plants in Montgomery, Alabama (Hyundai Santa Fe,, Sonata and Elantra and KIA (Santa Fe, Sorento) in West Point, Georgia.
Rumors of a potential Chinese buyer served in part to soften White House and Congressional opposition of a merger between FCA and Korea’s Hyundai
One source said that Italian-Canadian Marchionne – who is as at home in the Halls of Congress as in the European capitals of Rome, Paris and Berlin – is fully aware that any merger between a Chinese automotive group and FCA would be blocked by US President Donald Trump’s administration through the Committee on Foreign Investment in the United States.
However, the rumors of a potential Chinese buyer served in part to soften White House and Congressional opposition of a merger between FCA and Korea’s Hyundai. Hyundai, unlike its Japanese rival Toyota, is a relative latecomer to the US market and has the most to benefit in taking over the Chrysler distribution network and iconic Jeep brand.
Unlike Volkswagen and GM, Hyundai-FCA poses significantly fewer manufacturing plant and product overlaps both in the United States and Europe. The US-South Korean Free Trade Agreement – on top of closer political-military ties between the United States and South Korea over North Korea’s nuclear proliferation – would make a Hyundai-FCA merger more palatable to the Trump administration.
Skybridge Capital founder and former White House communications director, Anthony Scaramucci, said that the recently re-ratified US-Korea Free Trade Agreement is the best example of how Trump intends to tackle free trade issues: Not cancel them but update them so they are in step with the times.
Marchionne himself has repeatedly warned his fellow auto bosses in the United States and Europe not to underestimate the threat Korean manufacturers pose to legacy manufacturers.
However, the timing and launch of Hyundai Motor Group CEO Chung Mong-koo’s takeover bid for Fiat Chrysler are related to the FCAU stock price and Marchionne’s efforts to cut labor costs and increase profit margins in Italy.