The multiple voting structure of the new Fiat-Chrysler is a clear breach of the basic principle of equal treatment of shareholders

Posted on July 22, 2014

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At the upcoming EGM of August 1st, Fiat’s shareholders will vote on the migration of the newborn Fiat-Chrysler Group from Italy to the Netherlands. The transaction is structured as a cross-border merger of Fiat SpA with and into its Dutch subsidiary Fiat Investments NV, which will be renamed Fiat Chrysler Automobiles NV (“FCA”). The new group will have the fiscal domicile in the United Kingdom, to pay lower taxes on dividends, and the FCA shares will be listed on the stock markets of New York and Milan. The transaction is very similar to last year’s merger of Fiat Industrial with CNH, which generated the Dutch company CNH Industrial.

The Agnelli family group’s affection for the Netherlands is mainly due to more favourable requirements for corporate governance, including the possibility to grant multiple voting rights to certain categories of shareholders. All FCA shareholders that will register their shares in a special “Loyalty Register” will receive an additional vote per share, provided that they have uninterruptedly held the shares for at least 3 years. However, the former Fiat shareholders that will vote at the EGM will be entitled to the initial allocation of the special voting shares. Such multiple voting structure represents a clear breach of the basic principle of equality of shareholders, for at least two reasons:

  1. The initial allocation is only reserved to Fiat shareholders that will vote at the upcoming EGM, even if they purchased the shares just before the record date. All other shareholders will have to wait 3 years to receive the additional vote. Therefore, the multiple voting structure will initially reward the vote at the EGM, rather than the long-term shareholding.
  2. In order to be entitled to receive the additional vote, shareholders have to register their shares into the “Loyalty Register” (through a specific form published on the corporate website, to be delivered through the custodian). How many shareholders will actively request the registration? The sister company CNH Industrial is a very good example: 84.5% of CNH’s special voting shares are held by Exor (of which 7.2% through Fiat). The Agnelli family’s holding company controls 40.2% of total voting rights with only 29.7% of the share capital, to the detriment of all other long-term shareholders’ rights.

Thanks to the FCA’s “loyalty voting structure” (as called by the company), Exor will have the power to approve all ordinary and extraordinary resolutions, even without the approval of the market. A real anti-takeover device masked by a “loyalty reward”.

ECGS recommended its clients to oppose the Fiat’s cross-border merger, which is not necessary to the acquisition of Chrysler, completed 6 months ago, nor to the dual listing on the NYSE and the Italian Stock Exchange. The voting results cannot be taken for granted, as the resolution will need two-thirds of favourable votes to be approved, and Exor still controls 30.1% of voting rights. However, even if Fiat will fail in changing its country of incorporation, Exor might take advantage of a new Italian law (the so-called “Development Decree” of 24th June 2014), which introduced the possibility to issue multiple voting rights even in Italy.

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Posted in: M&A, Market rules