By Eric Sylvers and Ben Dummett
John Elkann, scion of the Agnelli family that controls Fiat
Chrysler Automobiles NV, sealed two deals that would have helped
him diversify his family's holding company. Now, one has come
undone, and the pressure is on him to save the other.
Last week, his $9 billion planned sale of an insurance company
fell apart when the buyer walked away before closing. And Mr.
Elkann's planned merger of Fiat Chrysler and Peugeot maker PSA
Group is under sudden strain.
Mr. Elkann, the 44-year-old chairman of both Fiat Chrysler and
Agnelli family holding company Exor NV, played a leading role in
negotiating both pacts, according to people familiar with the
matter. That has lifted him into a high-profile role in a global
drama playing out among deal makers trying to keep their big,
unfinished transactions on track amid the coronavirus pandemic.
"Given the unchartered waters we are in, Elkann's deal savviness
is being put to the test," said Tyler Tebbs, an analyst at
Olivetree Financial, a research firm that focuses on
Mr. Elkann declined to comment. In prepared comments released
Wednesday coinciding with Exor's annual shareholder meeting, he
said "all the workstreams for the 50:50 merger project... are
proceeding on time and as envisaged. The strategic logic of this
combination for the two companies and all their employees, is
stronger than ever."
Several big M&A pacts forged before the pandemic have
recently come undone, including Xerox Holdings Corp.'s $30 billion
bid for HP Inc. and Boeing Co.'s $4.2 billion deal to take control
of the commercial aircraft business of Embraer SA.
Executives on both sides of the Fiat Chrysler-Peugeot deal say
the merger makes more sense now than ever by combining the two auto
makers' financial resources and geographic markets. The two sides
say they expect the deal to close as planned before the end of the
first quarter of next year.
A big component of the tie-up, though, is a series of cash
payouts to shareholders at a time when cash preservation is core to
many companies' pandemic-survival plan. The payouts initially
included planned annual 2019 dividends of EUR1.1 billion ($1.2
billion) for each company. The two canceled those dividends this
The deal also calls for a further EUR5.5 billion payout to Fiat
Chrysler shareholders, to help make up for an imbalance in the two
companies' respective values in their so-called merger of equals.
Exor owns 29% of Fiat Chrysler, entitling it to EUR1.6 billion of
that. Following the deal's completion, Exor's stake in the combined
company would be diluted to about 14%.
Some analysts and investors criticized the size of the planned
payouts as too generous even before the economic fallout of the
pandemic forced big companies to rush for cash.
That has the market increasingly worried Peugeot could push Fiat
Chrysler to cut the dividend or restructure the payout to include
some types of shares over cash, arguing such a move would leave the
combined company in better health following the deal's completion.
However, it would also risk the deal's collapse by giving Fiat
Chrylser a possible out since the terms are binding. At the very
least any attempt to renegotiate the deal by either side could
prolong and further complicate an already detailed tie-up at a time
when both carmakers have stressed the deal's importance to their
In March, Fiat Chrysler secured a EUR3.5 billion credit line
with its banks to weather the storm. It is also discussing another
EUR6.3 billion Italian government-backed facility. Fiat Chrysler
said that at the end of March it had about EUR18 billion in cash
and liquid assets.
Fresh off the Fiat Chrysler-Peugeot merger, Mr. Elkann agreed to
sell Exor's reinsurance business, PartnerRe Ltd., to French
insurance giant Covéa Coopérations for $9 billion. Exor said it
hadn't been looking to sell the unit, but the Covéa offer was too
good to pass up. Exor bought PartnerRe in 2016 for $6.9
As the pandemic deepened, Covéa approached Exor to renegotiate
the deal, according to people familiar with the matter. It was
looking to cut the upfront price by about EUR2 billion, according
to these people. The new terms would have called for Covéa
eventually restoring the original $9 billion price tag -- but only
if the unit met certain benchmarks, these people said.
Mr. Elkann said no. Exor wouldn't be able to exert control over
PartnerRe, making hitting those performance benchmarks uncertain,
these people said. Mr. Elkann had another reason for balking: He
wanted to send a signal that he wasn't willing to renegotiate other
done deals, including the Fiat Chrysler-Peugeot merger, one of
these people said.
"If you cede on one deal, people are going to think they can cut
the price on you every time in the future," this person said. "And
John is going to be doing deals for many years to come."
Mr. Elkann, in his remarks to shareholders Wednesday, said "we
remain happy owners of a business." Covéa didn't respond to
requests for comment.
Mr. Elkann, the great-great-grandson of Fiat founder Giovanni
Agnelli, has been the Agnelli family's undisputed leader since
2004. But he had long let Sergio Marchionne, Fiat Chrysler's former
chief executive who died unexpectedly in 2018, take the lead
running the company. Mr. Marchionne also led the charge in both
men's longtime pursuit of a partner for Fiat Chrysler. When Fiat
Chrysler broached a combination with General Motors Inc. in 2015,
it was Mr. Marchionne who reached out to his rival.
With Mr. Marchionne's death, Mr. Elkann took a more direct role
in the search. Early last year, preliminary talks with Peugeot went
cold. He then turned to rival Renault SA. Those talks, too,
unraveled after the French government and Renault partner Nissan
Motors Co. failed to back the deal. Mr. Elkann reverted to Peugeot
and the two struck a merger deal last year, first reported by The
Wall Street Journal.
Mr. Elkann has enjoyed strong support over recent years from
family members, according to people familiar with the matter. That
stood in contrast to a history of public family squabbles since the
death of Mr. Elkann's grandfather, Gianni. The playboy
industrialist turned his own grandfather's company into a postwar
giant, earning the nickname, the "King of Italy." Exor's hefty
dividends in recent years, made possible by the return to health of
Fiat Chrysler and the strong results of other holdings, have helped
Mr. Elkann win the family's backing, according to people familiar
with the matter.
Mr. Elkann has led a fitful effort by the family to diversify
away from autos and into other areas including tech. In addition to
the stake in Fiat Chrysler, Exor owns 23% of Ferrari, almost
two-thirds of Italian soccer club Juventus and 27% of agricultural
equipment maker CNH Industrial NV.
He had been expected to direct the most of proceeds from the two
deals into new investments. In March, Exor spent EUR200 million for
a 9% stake in startup Via Transportation, which is building
ride-sharing technology for public transportation.
Write to Eric Sylvers at email@example.com and Ben Dummett at
(END) Dow Jones Newswires
May 20, 2020 12:05 ET (16:05 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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