FIAT eats Chrysler and is still hungry! Pt 1

[LUVMBDiesels]

Once FIAT digests MOPAR, it wants BMW! Say it aint so

(They can have Peugeot-Citroen for all I care)

Of course Chrysler might give them the same case of heartburn it gave DB...

Fiat’s Marchionne Mulls Europe Merger After Chrysler (Update1)




By Laurence Frost and Marco Bertacche
Jan. 23 (Bloomberg) -- Fiat SpA Chief Executive Officer Sergio Marchionne, architect of a planned tie-up with Chrysler LLC, may still regard a European alliance as his top priority.
Marchionne, credited with transforming Fiat from the laggard of the European auto industry into one of the continent’s most fashionable brands, said yesterday he’s “willing to start a dialogue” with any company that favors consolidation.
“A partnership with a European rival is vital,” said Emanuele Vizzini, who helps manage about $1.2 billion at Investitori SGR in Milan and lists PSA Peugeot Citroen of France and Germany’s BMW as two “natural candidates” for a merger with the Turin, Italy-based company.
European car sales plunged the most in 15 years in 2008, causing automakers to lay off workers and idle plants to clear stocks. Fiat yesterday cut its earnings forecast and said it won’t pay a dividend. Marchionne last month suggested the crisis could leave three European volume producers standing: Volkswagen AG, Renault SA and a third company built in a bout of consolidation.
The CEO acknowledged yesterday that many in the industry view a Fiat-Peugeot combination as a “marriage made in heaven.” He said he needs to proceed “softly and quietly” toward his goals.
Shares Decline
Fiat today fell as much as 12 percent to 3.35 euros, the lowest since at least 1985, extending yesterday’s 15 percent slide, after Standard & Poor’s Ratings Services said last night its credit ratings may be cut to junk. Fiat’s net debt has jumped to 5.9 billion euros, raising concern it may need to raise capital. The stock traded at 3.51 euros as of 12:01 p.m. in Milan.
Milan-based broker Intermonte Sim SpA today downgraded Fiat to “underperform” from “neutral,” citing an 80 percent chance of a rights issue, even after Marchionne yesterday denied the company was seeking to sell new shares and said he was close to agreement with banks on new credit lines.
Fiat’s alliance with Chrysler will see it transfer small- car technology to the Auburn Hills, Michigan-based automaker in return for a 35 percent stake and access to its U.S. plants, the companies said Jan. 20.
With Fiat’s sales strongest in Europe and Latin America and Chrysler focused on producing larger autos and SUVs for North America, the deal entails little overlap in products or markets. In a recession, that may be no good thing, said David Arnold, an analyst at Credit Suisse in London.
No Solution
“The Chrysler deal does nothing to solve the overcapacity problem,” said Arnold, who also favors a tie-up between Fiat and Peugeot. An all-European deal could “offset spiraling costs and declining volumes with savings from joint procurement, capital expenditure and research and development.”
Obvious overlaps between the activities of Fiat and Peugeot “would allow significant potential savings via joint purchasing from common suppliers,” Credit Suisse said in a note Jan. 12, when it predicted a tie-up between the two companies some time this year. Technology and components would also be spread across more models, reducing overall development costs, the bank said.
Marchionne, 56, is targeting the U.S. following his success in ending four years of losses at Fiat in 2005 with the introduction of new versions of the Punto and Panda and a revival of the 500 minicar, as well as partnerships with competitors to spread costs.
Addressing analysts following an earnings announcement yesterday, Marchionne refused to comment directly on the prospects for Fiat getting together with specific companies.
‘First Step’
“Chrysler is a first step in that direction -- it’s certainly not the last,” Marchionne said, adding that the U.S. company will have a “pretty good opportunity” to recover from the brink of bankruptcy with the help of Fiat’s technology and opportunities for joint savings.
Fiat, controlled by the Agnelli family, said 2009 profit will be “in excess of 300 million euros,” compared with an initial target of at least 2.9 billion euros ($3.7 billion). The company burned 30 million euros a day in the fourth quarter, causing net income to tumble 71 percent to 163 million euros.
“We see few reasons to own the stock given little visibility of a recovery in end markets, likely capital requirements and company guidance that, in our view, has potential for disappointment,” JPMorgan analysts Ranjit Unnithan and Klaus Breitenbach wrote in a note.
Adam Jonas, an analyst at Morgan Stanley in London, said the bank is telling clients “not to be distracted” by the Chrysler deal.
“The stock’s not going to trade on how well re-badged Fiats are going to do in the U.S. in 2012,” said Jonas, who rates the company “underweight.”
Estimate Cuts
Deutsche Bank AG, ING Wholesale Banking, JPMorgan Chase & Co., Mediobanca Securities, Banca Akros and Equita Sim SpA were among banks that cut price estimates on the stock today.
A combination of Fiat, Chrysler and Peugeot-Citroen would create the world’s third-biggest carmaker by volume after Toyota Motor Corp. and General Motors Corp. and would be tough to manage, said Sven Kreitmair, a credit analyst at UniCredit in Munich who cautions against a three-way deal. Obstacles would include the involvement of three different governments, he said.
Peugeot spokesman Pierre-Olivier Salmon declined to comment on the likelihood of a deal with Fiat. The stock was priced down 3.2 percent at 11.61 euros in Paris.