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Arrivederci alle province

5 January 2012 By Rob Cox

Italy is a global leader in fashion, food and art but comes up short on multinational corporations. That’s likely to change as Fiat plots a full takeover of Chrysler. Going global, though, comes at a price: Fiat’s Agnelli family may need to put pragmatism over sentimentality and move its headquarters from Italy.

Fiat is already becoming less Italian. This marks the first year the company is not a dues-paying member of Confindustria, the federation of Italian employers. Just a couple of years ago, when Fiat’s chairman led Confindustria, this would have been unthinkable. Chief Executive Sergio Marchionne withdrew Fiat largely to forge its own destiny with labor unions.

But the bigger catalyst for Fiat’s global graduation lies ahead. The launch of the Fiat-engineered fuel-efficient Dodge Dart allowed Fiat to raise its stake by five percentage points to 58.5 percent this week. Buying the remainder of Chrysler from a trust established to fund healthcare costs for retired UAW workers comes next, but will be far trickier.

The two sides are supposed to work out a deal in the first quarter of 2013. Though negotiations have yet to begin, they’re already far apart on price. Moreover, even if Fiat could snag a valuation in line with the price it paid for a 16 percent stake last year, it would cost around $3.3 billion. But given Fiat’s debt is nearly 6 billion euros – dwarfing its market value of 4.8 billion euros – that would be tight.

That suggests the best option would be to offer a combination of equity, with some cash, to the UAW trust as part of a full merger. The net present value of synergies that could be squeezed out – estimated by Breakingviews at some $17 billion – might also appeal to the trust. But it’s hard to imagine it would want its primary asset to be in Italian stock.

The solution, then, seems relatively simple. The companies combine and the trust gets shares in the new group, which transfers its incorporation and primary stock listing to the United States. Fiat becomes Italy’s first global company. It’s just not very Italian anymore.


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