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Black 6050 24th July 2014 14:21

Proxy advisors call for rejection of Fiat-Chrysler merger
Proxy advisors call for rejection of Fiat-Chrysler merger

By Bill Cawthon

Institutional Shareholder Services Inc. (ISS), the world’s leading provider of corporate proxy voting services, has issued a recommendation that Fiat shareholders reject the proposed merger of Fiat and Chrysler.

Fiat needs the approval of the holders of at least two-thirds of the shares being voted.

According to a Reuters report, an ISS recommendation document says, “Despite the potential benefits of a NYSE-listing in attracting new investors, (the merger) would decrease shareholder rights.”

Frontis Governance, a smaller, Italian proxy advisor based in Rome, has made the same recommendation.

A primary objection to the merger is the special class of “loyalty” stock which rewards long-term shareholders with additional voting shares.

Fiat shareholders who vote on the merger, whether in person or by proxy, and continue to hold their shares until the closing, are eligible to receive special voting shares equivalent in number to the FCA common shares they receive.
Shareholders are eligible to receive the special shares regardless of how they vote and those who hold their FCA common shares for at least three years would also be entitled to participate in the loyalty voting structure.

Under the plan, ISS and Frontis say that Exor, the Agnelli family holding company that has a 30% controlling interest in Fiat S.p.A., could have up to a 46% voting interest in Fiat Chrysler Automobiles.

Quoted by Reuters, Sergio Carbonara, the founder of Frontis Governance, said, “The idea of a second voting share is like a gift to Exor.”


Shareholder Shares Percent
Exor S.p.A. 375,803,870 30.00%
Fiat S.p.A. 34,577,882 2.76%
Baillie Gifford & Co. 33,034,705 2.64%
Norges Bank Investment Management 26,945,587 2.15%
The Vanguard Group, Inc. 25,782,643 2.06%
Schroder Investment Management Ltd. 25,782,643 2.06%
Marketfield Asset Management LLC 24,399,565 1.95%
BlackRock Fund Advisors 13,433,385 1.07%
Grantham, Mayo, Van Otterloo Co. LLC 9,849,007 0.79%
Capital Research & Management Co. 9,000,000 0.72%

TOTAL 578,609,287 46.20%

As the chart shows, the top ten shareholders have a total stake of 46.2%, far less than the 66.7% needed to approve the merger. As of July 22, the company has issued 1,250,963,898 shares and it’s going to need more than 833,975,932 of them to be voted in favor of the merger.

With just eight days until the scheduled vote a week from Friday, Sergio Marchionne and John Elkann are going to be busy lining up support.

Since the new five-year plan is predicated on the merger going through, it’s not known what form any Plan B would take, considering that plans to list the new company’s stock on the New York exchange would have to be shelved, making it more difficult for either Fiat or Chrysler to access American financial markets.

Altering the terms of the merger would throw a monkey wrench into the timing, as new documents would have to be prepared and filed and the Fiat board would have to meet again before a new shareholder’s meeting could be scheduled. This would certainly push Marchionne’s timetable well into the first quarter of 2015 if not later.

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