GreenWood Investors On Fiat-Chrysler
Fiat-Chrysler has approached activist investors in the past to try and push for a merger with General Motors. They've now approached GM twice in the last four years. Fiat's Ferrari IPO is coming and it remains an interesting "special situation." Harry Wilson has thoughts on a Fiat-GM merger [link here]. Here are some of GreenWood Investors' thoughts from their most recent (2Q) letter, including the addressing the rumors that Fiat have reached out to activists (emphasis ours):
Nearly three years after our investment in the shares, FCA remains the most attractive position in our portfolio. As has been very typical from our experience over the last few years, negative and false news stories have been recirculating about the company’s prospects. The media is claiming CEO Sergio Marchionne is desperate to merge FCA into a larger company, with ensuing speculation that his industrial plan is about to fail. First off, most of the reports that FCA is reaching out to shareholders and activists are completely false. Secondly, if Marchionne was about to miss his ambitious targets set last year, he wouldn’t have let his CFO commit to doubling North American operating income by the end of the year, just five minutes before he gave his ground-breaking merger presentation. North American profit margins have been a key overhang for the company, as they are less than half of Ford’s and GM’s with a similar product mix. As we detailed last August, North America is really just a pricing story for FCA. As the company refreshes the ghosts of its under-invested past, incentives on these ancient cars are rolling off. We demonstrated how by Q1 2015, pricing would be increasing by $281 million a quarter. In the first quarter, the company has gotten over 80% of the way there, and will be exceeding this in the second quarter. If we take global economic factors out of the equation, modeling out FCA’s results has actually been quite easy. We continue to be astounded that the sell-side analyst community continue to do such a poor job analyzing FCA and its trajectory. Current estimates for 2016 operating profit at the company are 38% below our estimates and we think shares of FCA will at least double by this time next year. While we trimmed our position earlier in the quarter, as it became apparent to us that the company would miss these inept sell-side estimates of the first quarter results, we have used the subsequent weakness to repurchase much of these shares.