* Seeks to create Dutch-registered Fiat Chrysler Automobiles
* Merger subject to 500 mln euro limit to pay out exit
* Fiat shares fall to lowest level this year on merger
* Low share price makes cash exit right more attractive
(Recasts with Marchionne comments, adds details, updates
By Agnieszka Flak and Bernie Woodall
MILAN/DETROIT Aug 6 Fiat Chief
Executive Sergio Marchionne on Wednesday blamed overblown press
reports and a "lack of understanding" of the merger with its
U.S. unit Chrysler for a share sell-off that threatens to blow
the planned tie-up off course.
Marchionne wants to incorporate the two carmakers into
Dutch-registered entity Fiat Chrysler Automobiles (FCA), paving
the way for a U.S. listing key to help fund an ambitious
investment plan at the world's No.7 auto group.
But the merger could still fold if enough investors decide
to exercise a right to sell their Fiat shares triggered by the
carmaker's decision to move its headquarters and fiscal domicile
away from Italy, its home for the past 115 years.
"The press has overplayed the withdrawal rights scenario,"
Marchionne told analysts during a conference call on Chrysler
earnings. "We are paying the price for an overreaction ... based
on a lack of understanding of what this means."
Concerns over the merger's completion triggered a sell-off
that saw Fiat shares lose nearly 9 percent over the last two
trading sessions. On Wednesday the stock hit its lowest level
since Fiat announced on Jan. 1 it would buy out Chrysler.
Under the terms of the merger deal, dissenting investors can
sell their shares for a cash exit price of 7.727 euros, nearly
20 percent more than Wednesday's closing price of 6.47 euros.
The recent share drop makes it attractive for these
investors to accept Fiat's cash offer, increasing the chances
that Marchionne's much sought-after merger may not go ahead.
Fiat has said if it has to put out more than 500 million
euros ($668 million) to pay off shareholders and creditors, the
merger would not go ahead.
"The problem remains the cash exit rights," one Milan-based
trader said. "The more the stock drops, the more it increases
expectations of more people selling out, which in turn increases
the number of people selling."
Concerns over the merger were initially raised by two proxy
advisors, ISS and smaller Frontis Governance, which recommended
a vote against the merger, saying it decreased shareholder
rights and tightened the grip on the company of holding group
Exor through a loyalty scheme put in place as part of
the merger to reward long-term investors.
Fiat shareholders approved the merger with a two-thirds
majority of those present at a meeting on Friday.
Investors holding around 8 percent of Fiat's share capital
voted against the merger and are entitled to sell out. A
spokesman for Fiat said shareholders that did not attend the
meeting were also eligible for a cash exit, boosting the chances
of the 500 million euro cap being reached.
But Marchionne played down the chances of this happening.
"I am absolutely unfazed by all of this," Marchionne said,
adding that if the creation of FCA failed at this time, he would
wait "until we have better conditions to get this done".
Marchionne said Fiat can still offer the dissenters' shares
to current investors in the first place and later to the market
in a bid to keep the payout sum below its self-imposed cap.
However, not many may be willing to buy shares at the set
price of 7.727 euros a share if it stays above market levels.
The cash exit right is a right granted to shareholders under
The number of shares affected by the exit rights will not be
known until around Aug. 25, Marchionne said.
But it may take until early October to find out if the
exercise has derailed the merger, Marchionne said last week.
Fiat said in a statement on Tuesday no shareholder had
declared an intention to exercise the exit right at that stage.
The creation of FCA will not lead to significant operational
cost savings or synergies, Fiat has said, and failure to get the
final green light for the tie-up would have little operational
However, a rejection would likely prove embarrassing for
Marchionne, who has been working on bringing together Fiat and
Chrysler since helping rescue the U.S. No.3 carmaker from
bankruptcy in 2009. It may also result in higher financing costs
going forward, analysts have said.
Chrysler on Wednesday reported second-quarter earnings of
$619 million (463.5 million euros), up 22 percent, on net
revenue of $20.5 billion.
(1 US dollar = 0.7483 euro)
(Additional reporting by Stefano Rebaudo in Milan and Ben
Klayman in Detroit; Editing by Mark Potter and David Evans)