M&A 4 Flashcards
(13 cards)
which were the details of the GM fiat agreement?
GM acquired 20% of fiat Auto in exchange for 5.1% of their shares going to FIAT. fiat also had put options to GM for the remaining 80% stake in Fiat AUTO. this position started causing losses to GM when fiat price fell and was closed with a cash compensation of 1.55B ging to fiat as well as the inital 20% stake in fiat auto (GM paid not to own fiat).
where did the 10B difference between SOTP valuation and implied market EV stem from?
Because investors did not want to be involved in one of the two businesses, hence they were willing to buy the company only at discount compared to peers. Investors do not like to delegate capital allocation
what was the main issue with the way FIAT was managed?
The good business was covering the losses of the other businesses; hence the complexity was hugely not only not creating value but also absorbing the net profit of the different business lines. Investors did not like neither the portfolio nor how it was managed
how did GS solve the issue?
GS decided to do the spin-off, rather than 1 shares of Fiat Group they were separated into 1 share of FCA (car business) and 1 share of other business. It was a cash neutral, by the separation you address the discount. The execution is like IPO (documentation, approval, etc. etc.).
why did bondholders agree to lend 14.9B to fiat group? how was this debt split after the demerger?
Why lenders and bondholders gave 14.9+ debt?
One of the reasons is that they do not care which business was generating value and making money. Another is that there was a good collateral (asset).
it was decided (for a cash neutral request from Marchionne) to allocate 2.7 billion in the car business and the remaining 12.2 billion in Fiat Industrials. In order to avoid the re-negotiations of Terms & Conditions with banks (shorter maturity, higher conditions or more collateral), the allocation was to have a cross-guarantee scheme, for all maturity of existing liabilities for 5 (average mty years) the 2 businesses were paying interests independently, but in case of default of any of the two the other business was responsible for the repayment. After 5 years, they would re-finance the debt at better condition as well.
what was the next step to simplify the governance?
Given the two businesses, it was time to simplify the corporate governance. Semi-preferred and savings shareholders should become ordinary. Before it was not possible, because the share price of 4 euros would dilute the family value and they would not be willing to.
what was the rationale of the Crysler acquisition?
After the Spin off FIAT wanted to reinforce their US presence. Crysler was facing severe difficulties and was being bailed out by govn to save pension. FIAT agreed with institutions to purchase and support crysler through an earn-out scheme.
what is an earn-out? how was it applied in FIAT’s case?
you acquire a company for deferred considerations which are tied to the achievement of milestones and financial KPIs. they received an Inital 20% stake for free and got call options on the remaining stake owned by shareholders, which were exercised in 2011 for a 1.3B consideration finance through new debt.
what was marchionnes proposal to VEBA? how did it turn out?
given that Fiat was not willing to buy the remaining part of the group from VEBA he proposed to proceed with an IPO of VEBA’s shares. However, the transaction embedded market risk, and VEBA did not want, the shares were sold at favorable condition.
what happened from a domiciliation standpoint in the wake of the Crysler acquisition? why?
Following the acquisition of Chrysler Group, FIAT experienced a Redomiciliation, which is the procedure by which the group changes its headquarters and location to a different jurisdiction. Why was the Netherlands chosen?
Because the jurisdiction gave the opportunity to implement a double vote mechanism, which is the procedure by which more voting rights are given to more loyal shareholders, and also because it was more friendly with entrepreneurs.
Tax domicile was shifted from Italy to Uk. The transaction needed to be approved by EGM who had the withdrawal rights, opportunity to sell their shares at 6-m average in case of opposition, but also this time he put a cap of 5 billions which discouraged their action.
how did the rollup strategy proceed after the Chrysler acquisition? why did the 2 initiatives fail?
–> acquire GM to boost profitability and reduce break even point by lowering unit costs. Chrysler failed to conclude the transaction
–> join Renault group in a merger of Equals (the 2 entities join in a newCo with a split of shares around 50/50 max difference being 60/40), the problem here was opposition from the policies of the french government.
after the 2 transactions failed Elkann reassured shareholders to follow the standalone plan in order to organically prepare for a new acquisition.
How was the PSA deal shaped?
- merger of equals in a dutch Newco with 50/50 stock split between PSA and FCA shareholders.
-to achieve the 50/50 split PSA shareholders would receive 1,7 shares of the newco for each PSA share, FCA 1 for 1. - 1.1 B ordinary dividend to be paid by both entities before merger + the 46% stake held by PSA in faurecia would be distributed to PSA shareholders, 5.5B extraordinary dividend to FIAT shareholders.
-BoD split 50/50 between PSA and FCA nominees
-double voting scheme annulled with the chance for shareholders with less than 30% stake to gain increased voting rights after 3 years of loyalty.
-large shareholders prohibited from selling shares in the public market for up to 3 years
what happened to the PSA merger when covid hit?
Covid-19 came and there were two options for the transaction:
1) Call-it Off
2) Continue and revise the merger ratio
H1 revenues from PSA reported -13Million with respect to the previous year (38M €). FCA had an even higher decrease due to its high exposure to USA which is more volatile to the economy, amplifying its revenues decrease.
In order to keep the merger-of-equal, instead of revising the merger ratio and new company composition, FCA agreed to decrease the amount of dividends to 2.9 B€, and due to higher synergies from more subsidies’, estimated synergies were revised upwards.
