fiat takeover Essays

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Introduction
In the automotive and, more generally, in the industrial arena Fiat Group Automobiles (Fiat) and Chrysler Group LLC (Chrysler) can be considered two permanent case studies. In particular now that they are joining their trajectories. Both companies have gone through many crises in more than a century of existence.
1. In 2009, Fiat was one of the world's automakers which seemed less affected by the economic crisis. Thanks to the work of its CEO Sergio Marchionne, the company was strong with respect to financial and performance data. Chrysler, on the other hand, after the failure of the merger with Daimler-Benz and the acquisition by the fund Cerberus Capital Management, entered 2009 with a financial and economic instability that led to bankruptcy. The continued decline in sales over the last ten years brought the number of cars sold from 2.6 million in 1999 to 1.4 in 2008 (Chrysler Group LLC Annual Sales Reports, 1999-2008). To survive and repay maturing debt obligations, Chrysler received some funding from the U.S. government in late 2008. However, the debts were tied to the achievement of a satisfactory turnaround plan, for which it was necessary to find an industrial partner to provide advanced technologies. This was the main reason for the tentative agreement with Fiat. The final agreement was signed on June 10, 2009. The beginning of the negotiation process, from which this agreement comes, may be traced back to January 20, when Fiat and Chrysler jointly signed a non-binding letter of intent for the creation of a 'global strategic alliance.
2. As consideration, Fiat received an initial equity interest of 20% in the newly-formed Chrysler Group LLC, which could increase up to a total of 35% upon achievement of specific pre-established targets. The agreement does not contemplate any cash investment in Chrysler by Fiat or commitment to fund Chrysler in the future. Fiat will also have the right to acquire a majority interest in Chrysler once all government loans have been fully repaid. The alliance is expected to bring enormous benefits to both companies by giving them the critical mass necessary to compete at a global level. Fiat will also be able to expand its geographical footprint by leveraging new market opportunities such as a return to the US market and introduction of new models in Europe. Fiat’s presence and experience in the smaller car segments combined with Chrysler’s presence and experience in the medium and larger segments will enable the Group to offer a full range of products. According to the „January 20‟agreement, Fiat would provide licenses to use platforms for Chrysler’s fuel-efficient vehicles, engines, transmissions and components, in order to produce in its plants. The two companies would also have access to their distribution networks. As consideration, the letter of intent states that Fiat would receive an initial 35% stake in Chrysler, with an option to purchase an additional 20% after twelve months.
For Fiat, on the one hand, the agreement would mean the availability of selling technologies that have resulted in significant investments, and will have access to markets with great potential, through the launch of brands such as Alfa Romeo and Fiat 500. It would thus resume the path of internationalization in the United States, several times initiated and then stopped by the company in the second half of the twentieth century.
For Chrysler, on the contrary, the agreement with Fiat was a big part of the recovery plan submitted to the U.S. government and is consistent with the terms and conditions for the granting of the received funds: corporate restructuring and conversion of production towards environmental-friendly vehicles.
3. However, the situation immediately presented an impasse: i) Chrysler needs additional funding to ensure business continuity and the agreement with Fiat is necessary in order to launch a business plan to meet the demands of the U.S. government; ii) Fiat does not
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