Consumer Discretionary / Industrials

Henry Kwon

Equity Bottom-Up

<div class="content-highlight"><p>Western media has been focusing on Mr. Sergio Marchionne, CEO of FiatChrysler, who has been looking for a buyer to sell parts of FCA for some time now to fix its balance sheet but has most recently been rebuffed by GM and VW over the course of the summer.  The latest Korean media and stock broker chatter is that now Hyundai is the targeted buyer for FCA since allegedly the U.S. government will not sign off on a potential Great Wall-FCA merger.  In the meantime Mr. ES Chung, Hyundai Motor Group's vice chairman, has publicly remarked that FCA is underprepared for autonomous driving and EV and that HM Group is more interested in focusing on closer cooperation with ICT companies (see Min-hee Jung, "Hyundai Motor Group Will Be World's Largest Automaker by Acquiring FCA," Business Korea, Sep 21, 2017). <strong>At this point, I would put my money on Mr. Chung's public statements over broker talk on where Hyundai strategically stands on this issue.</strong></p></div><p>As usual, I suspect stock brokers will talk up merger scenarios to sell stocks, and flavor that storyline with tales of poor corporate governance that will deprive investors of their rightful claims on higher dividend payouts, etc., in an effort to make their messages more compelling.  Fund managers will pretend to eat this up in front of sellside brokers but make mental notes on what the baseline dumb money chatter will likely be in the market, and then most likely turn to look very closely at the reality of the situation.</p><p>There are a few fundamental reasons why I think Hyundai does not need FCA strategically but if it does make a decision by the year's end to acquire the latter it may be a politically motivated decision as cost of doing business in the U.S.</p>

Western media has been focusing on Mr. Sergio Marchionne, CEO of FiatChrysler, who has been looking for a buyer to sell parts of FCA for some time now to fix its balance sheet but has most recently been rebuffed by GM and VW over the course of the summer.  The latest Korean media and stock broker chatter is that now Hyundai is the targeted buyer for FCA since allegedly the U.S. government will not sign off on a potential Great Wall-FCA merger.  In the meantime Mr. ES Chung, Hyundai Motor Group's vice chairman, has publicly remarked that FCA is underprepared for autonomous driving and EV and that HM Group is more interested in focusing on closer cooperation with ICT companies (see Min-hee Jung, "Hyundai Motor Group Will Be World's Largest Automaker by Acquiring FCA," Business Korea, Sep 21, 2017). At this point, I would put my money on Mr. Chung's public statements over broker talk on where Hyundai strategically stands on this issue.As usual, I suspect stock brokers will talk up merger scenarios to sell stocks, and flavor that storyline with tales of poor corporate governance that will deprive investors of their rightful claims on higher dividend payouts, etc., in an effort to make their messages more compelling.  Fund managers will pretend to eat this up in front of sellside brokers but make mental notes on what the baseline dumb money chatter will likely be in the market, and then most likely turn to look very closely at the reality of the situation.There are a few fundamental reasons why I think Hyundai does not need FCA strategically but if it does make a decision by the year's end to acquire the latter it may be a politically motivated decision as cost of doing business in the U.S.

Hyundai Motor and FiatChrysler? Believe ES Chung or Stock Brokers?