Hedge funds are shorting Fiat’s stock, as doubts emerge that a full merger with Chrysler will happen on schedule.
“Hedge funds Marshall Wace LLP, Odey Asset Management LLP and Adage Capital Partners GP LLC are among firms shorting Fiat,” Bloomberg’s Sofia Horta e Costa reported, citing the company’s own data.
Fiat and CEO Sergio Marchionne stepped in to take Chrysler off the U.S. government’s hands during the 2009 meltdown of the Detroit automakers. Both Chrysler and General Motors had to bailed out by the government and later went bankrupt. At the time, Chrysler was widely assumed to be the weakest of the Big Three Detroit car companies. (Ford didn’t take bailout funds and avoided bankruptcy).
Since those dark days, Chrysler has enjoyed a resurgence and Fiat has returned to the U.S. market after a multi-decade absence. Fiat fully acquired all of Chrysler’s shares in January, 2014, but the two firms have yet to fully merge.
As Horta e Costa noted, Fiat shareholders in early August okayed a plan for Fiat and Chrysler to form a single entity, Fiat Chrysler Automobiles NV, “to be incorporated under Dutch law and traded on the New York Stock Exchange.”
Here’s where is gets tricky — and the hedge funds enter the picture. The Fiat shareholders who didn’t vote for the merger are entitled to a payout: They can sell their stakes back for a premium. However, according to Horta e Costa, if the total buyback cost goes over 500 million euros, Marchionne thinks the deal will fail.
And so down goes Fiat stock, and in come the hedge funds to short it.
The question now is whether Marchionne will figure out a way to keep the merger on track.
So far, he’s has been able to execute on his plan to transform Fiat into a major global carmaker with a strong North American presence, on a par with Toyota, General Motors, and Volkswagen.
This latest episode could be a mere bump in the road, but it could also upset the hoped-for final integration of two car companies that formed an unlikely bond five years ago.
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