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Fiat shareholders approve Chrysler merger

feature : Fiat Lingotto Factory, Torino, Italy (1923)

Fiat shareholders today approved the automaker’s merger with Chrysler in a move that seals the end of Fiat as an Italian company.

Fiat, Italy’s largest manufacturer and a symbol of the country’s struggle to adapt to globalization, is leaving home after 115 years. The new company arising from the merger, Fiat Chrysler Automobiles NV, will be incorporated under Dutch law, based in the UK and listed on the New York Stock Exchange.

The merger will create the world’s seventh-largest automaker.

“With today’s meeting begins the future of our company,” Chairman John Elkann, the grandson of late Fiat patriarch Gianni Agnelli, said at the start of the last shareholder meeting likely to be held in Italy.

Fiat won the two thirds majority it needed for the merger. Around 8 percent of all Fiat shareholders voted against the move. Should all of them exercise their exit rights, the move could still fail, according to a condition set out as part of the merger.

CEO Sergio Marchionne said after the vote that he is confident that the merger will get final approval despite resistance from some shareholders.

Investors will receive one FCA share for each Fiat share they hold. Most will also be eligible for special voting shares, which will not be listed or traded. Investors who voted against the merger are entitled to cash exit rights of 7.727 euros per share. Should the total sum that needs to be paid for those rights to shareholders and creditors exceed 500 million euros, the merger will fail, Fiat has said.

Marchionne said he would try again try to merge the two carmakers if that occurred, but the process would be much delayed.

The creation of FCA will not lead to significant operational cost savings or synergies, Fiat has said, and failure to get the final OK for the tie-up would have little operational impact.

Elkann told shareholders today that the Agnelli family will remain committed to the carmaker. “I want to confirm today my own and my family’s commitment to continue to support Fiat Chrysler Automobiles, even more so now that there are big opportunities on the horizon,” Elkann said, dismissing talk that the family wanted to sell down its stake.

Earlier this year, Elkann had said that the birth of FCA will end the precarious life of Fiat. “For the first time we have a different perspective: we don’t need to play a game of survival,” he said.

Industry watchers had expected Fiat to win a majority vote because its biggest shareholder, Exor, the holding company of Fiat’s founding family, owns an influential 30.04 percent stake.

Elkann said today that the People’s Bank of China owns 2 percent of Fiat Chrysler, making the Chinese central bank one of the group’s key investors.

Fiat Chrysler Automobile’s cosmopolitan structure reflects an industry shift away from national champions like Fiat, which for decades prided itself on an Italian and Turin heritage. By combining resources with the U.S. carmaker, the company formerly known as Fabbrica Italiana di Automobili Torino can better compete with heavyweights like General Motors Co., Volkswagen Group and Toyota Motor Corp., Marchionne says. A brush with bankruptcy a decade ago proved the Italian focus was unsustainable.

Toughening regulation calls for large sales volumes to finance development of cleaner engines and expand in growth markets like China and India. Fiat plans to invest 55 billion euros ($74 billion) in the next five years to boost deliveries 61 percent to 7 million cars by 2018. That’s still less than VW’s target to sell 10 million vehicles this year.

There’s little option for Fiat as a stand-alone company. North American operations, which were non-existent before Fiat gained control of Chrysler about five years ago, accounted for 62 percent of the group’s second-quarter operating profit. The manufacturer’s once-core European operations lost 6 million euros, as the saturated market gradually recovers from a two- decade low. Without its U.S. division, Fiat would have been unprofitable in 2012 and 2013.

While Italy won’t be completely abandoned, it will become less central. The headquarters will move from a villa adjacent to Fiat’s iconic former Lingotto factory, which features an oval track on its roof and now houses shops, a hotel and a theater, in a sign that Italy can move on. The new location will be in Slough, England, until Fiat opens a London office by the end of the year. Milan will be relegated to a secondary listing for FCA’s shares.

To take the sting out of the shift, Marchionne plans to keep administration and information-technology functions in Turin. He’s also vowed to keep all of Fiat’s Italian factories open and rehire about 30,000 line workers, who are largely on furlough.

To do that, he plans to build the compact Jeep Renegade as well as other models from the Chrysler brand in Italy. Fiat also intends to expand the upscale Alfa Romeo and Maserati nameplates to compete worldwide with the likes of BMW, Audi and Porsche.

Still, the deal isn’t a cure-all. FCA lacks a sizable presence in China and its Latin American operations are struggling. Even before the Chrysler combination is finalized, Fiat has been linked to mergers or deals with Volkswagen as well as France’s PSA/Peugeot-Citroen in recent weeks. While Fiat has publicly denied talks, the reports reflect investor skepticism about Fiat’s ability to meet its targets, even as Marchionne basks in his fairy-tale deal.

Fiat’s headquarters will move from a villa adjacent to the former Lingotto factory, which features an oval track on its roof, to England.

Marchionne counts on the merger and the U.S. listing to help finance his ambitious business plan to grow net profit five-fold.