VW's Winterkorn and Fiat's Marchionne shown emerging from a meeting in Geneva last year.
Volkswagen Chairman Ferdinand Piech has a voracious appetite – for acquisitions, that is, the recent additions of Porsche and truckmaker Scania AB to the VWAG family bringing to thirteen its global brand count. And he has openly expressed interest in adding more, his second-in-command, VW Chief Executive Martin Winterkorn even naming Alfa Romeo as a possibility.
So, why not go one step further and buy Alfa’s parent, the newly merged Fiat Chrysler Automobiles? Or so goes a story in Germany’s Manager Magazin that set the rumor mill ablaze today. It claimed that Volkswagen, the largest maker in Europe and the world’s second-largest, based on 2013 sales, had approached Fiat about selling it some or all of the Euro-American company.
However, both companies are firmly denying the report, Fiat declaring in a statement that has, “not held discussions with Volkswagen regarding a potential merger.” For its part, a VW statement flatly said that, “There are currently no M&A projects on the agenda,” adding that, “We are now focusing on boosting efficiency within the Group.”
The German maker has several lavish investment programs underway, including one just announced to double the size of its assembly plant in Chattanooga, Tennessee. And it has also revealed an aggressive new cost-cutting campaign.
(VW to double size of Tennessee plant to build new CrossBlue SUV. Click Herefor the full story.)
Nonetheless, the news generated plenty of buzz and sent Fiat stock jumping by as much as 5% before it settled back at the end of the day, still up almost 2%. VW, however was mostly down during the day’s trading, at one point by more than 3%.
Did the magazine pull the rumor out of thin air? Over the past two decades, VW has snapped up a wide assortment of brands, including Porsche, Scania, Czech carmaker Skoda, Spain’s Seat, Italy’s Lamborghini and Britain’s prestigious Bentley. Piech has openly expressed his belief that VW could grow even larger.
Winterkorn has himself named Alfa as a brand he’d like to bring into the family – never mind the fact that Fiat Chrysler CEO has, in turn, repeatedly said Alfa is not for sale. If anything, Fiat has developed a plan to invest 5 billion Euros, or $7 billion, to expand the Alfa product portfolio and turn around the long-struggling brand.
According to the rumors, VW would have snapped up Fiat’s publicly traded shares and largely taken control away from Exor SpA, the investment group owned by the Agnelli family that has long controlled the Italian maker. Exor currently holds 30% of Fiat stock. As part of the deal, Exor would have continued to run Ferrari, which would have been spun off as a separate company.
There have, in fact, been long-running reports suggesting Ferrari will eventually be spun off, an expectation CEO Marchionne attempted to dash, once and for all, during a day-long strategy briefing at Fiat Chrysler’s U.S. headquarters in suburban Detroit on May 6th.
One reason the rumors appear to have been taken seriously is the clearly stated VW goal of becoming the world’s largest automaker by decade’s end. It sold just short of 5 million vehicles during the first half of this year, just slightly ahead of General Motors. But Toyota is expected to report sales of about 5.2 million.
(VW sales soar despite U.S. struggles. Click Here for more.)
“Volkswagen has an urge to become the No. 1 global automaker, and an acquisition of that size would bring them to their target immediately,” Juergen Pieper, an analyst at Bankhaus Metzler in Frankfurt, told the Bloomberg news service. “But real interest in Fiat as a whole is rather unrealistic and would entail many problems.”
Among those would be the potential for anti-trust action.
But VW likely could muster the resources to swallow up Fiat Chrysler if it wanted to. It’s currently valued by investors at $120 billion, roughly nine times the $13.4 billion valuation for Fiat Chrysler. The smaller company recently announced it was moving its combined headquarters to London, though registering in the Netherlands. It plans to begin selling its shares both on the New York and Milan exchanges.
(Click Here to find out why VW ordered a stop-sale on its brand new Golf and GTI models.)