Fiat is planning to convert preference and savings shares into ordinary shares, a move that will cut the cost of equity and eliminate a possible obstacle to merging with Chrysler, which is currently majority owned by Fiat. Last Thursday, Fiat and sister company Fiat Industrial said that the proposed conversion plan will simplify the capital structure and the governance for the two groups.
Analysts consider the plan to be moderately earnings-enhancing since it will decrease the total number of issued shares and do away with the cost of higher dividends for holders of savings and preference shares.
They explained that making the equity structure simpler will permit Fiat to take away a potential obstacle to a full merger with Chrysler, which it has been managing since 2009 after it entered a bailout deal with the U.S. government in 2009. Fiat presently holds 53.5% of Chrysler. This is expected to increase to 58.5% by the end of the year.
In a report, Mediobanca's senior analyst Massimo Vecchio said that a merger with Chrysler is easier since savings shareholders would no longer be able to prevent it.
Notably, if Fiat chose to spin-off luxury sports car brand Ferrari, it would no longer have to issue Ferrari savings and preference shares to Fiat shareholders. [source: Guardian]