Fiat investors vote on Chrysler merger to ease access to cash, U.S. investors

Thu Jul 31, 2014 7:01pm EDT

* Shareholder meeting kicks off at 0900 GMT

* Two-thirds majority needed for merger to be approved

* Merger key to facilitate U.S. listing, capital raising

By Agnieszka Flak

TURIN, Italy, Aug 1 (Reuters) - Fiat shareholders are expected to approve the Italian carmaker's merger with its U.S. unit Chrysler on Friday, a union aimed at boosting the world's seventh-largest auto group's appeal with foreign investors and paving the way for a U.S. share listing.

Chief Executive Sergio Marchionne completed the buyout of Chrysler earlier this year and is hoping to incorporate the two as a Dutch-registered combine, Fiat Chrysler Automobiles (FCA).

He counts on the merger and the U.S. listing to help foot the bill for his ambitious 48 billion euro ($64 billion) plan to grow net profit five-fold and sales by 60 percent by 2018.

Marchionne helped rescue Chrysler in 2009 and turned the U.S. firm into a key profit centre for Fiat, although quarterly results released on Wednesday disappointed.

The full merger will help Marchionne distance himself from troubles in Europe, where thousands of Fiat's Italian workers are still on state-backed temporary lay-off schemes, highlight its gains in the United States and convince a larger pool of investors that the merged Fiat Chrysler can take the fight to rivals General Motors and Ford Motor Co.

"The birth of FCA will end the precarious life of Fiat," Chairman John Elkann, the grandson of late Fiat patriarch Gianni Agnelli, has said. "For the first time we have a different perspective: we don't need to play a game of survival."

FCA is expected to be headquartered in London and have its tax domicile in Britain, Fiat has said, cementing a politically-sensitive shift away from Italy, its home of the past 115 years.

The merger will not result in any significant operational cost savings or synergies, Fiat has said, and failure to secure shareholder approval would have little operational impact.

However, a rejection would likely "prove embarrassing for Marchionne and may result in higher financing costs going forward," Arndt Ellinghorst, a London-based analyst at investment researchers ISI Group, said in a note.

A two-thirds majority is needed to approve the deal.

Marchionne said last week he was confident that the merger would be approved, although proxy advisory firms differed in their recommendations to international investors.

ISS and smaller peer Frontis Governance recommended that investors vote against the deal, saying it would reduce shareholder rights and tighten the grip on the company by the Agnelli family's holding group Exor.

But another key proxy adviser, Glass Lewis, said the merger's benefits outweighed the risks.

"The proposed reincorporation is, on balance, in the best interests of shareholders," Glass Lewis said.

Exor owns 30 percent of Fiat, but its voting power could rise to as much as 46 percent via a loyalty scheme put in place as part of the merger to reward long-term investors.

Investors will receive one FCA share for each Fiat share they hold. Most will also be eligible for the special voting shares, which will not be listed or traded.

Shareholders who vote 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 exit rights exceed 500 million euros, the merger will not go ahead, Fiat has said. ($1 = 0.7468 Euros) (Reporting by Agnieszka Flak; Editing by Elaine Hardcastle)

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