NEW YORK (The Deal) -- Fiat Chrysler Automobiles (FCAU) has vocally sought a merger partner. Volkswagen (VLKAY) is suddenly reeling. Don't be surprised if Fiat CEO Sergio Marchionne makes a move.
Germany's VW has lost nearly $30 billion in market capitalization -- about one third of its total -- this week after admitting that more than 11 million vehicles had software installed that allowed them to cheat diesel engine emission tests. Volkswagen is already setting aside more than $7 billion to handle potential fines, recalls and vehicle buybacks, but analysts have warned that the damage could be more than twice that amount should regulators throw the book at the automaker.
Volkwagen CEO Martin Winterkorn stepped down Wednesday.
Enter Marchionne, the charismatic leader of Fiat Chrysler with a strong reputation as a problem solver and loads of investor credibility. Marchionne is also one of the industry's most vocal advocates for consolidation, arguing that combinations are needed to bring down overcapacity and help streamline some of the more than $100 billion in annual industry research and development spending that for now is driving down returns on invested capital.
Volkswagen, like Marchionne's primary target General Motors (GM - Get Report) , has previously rebuked suggestions of a merger by arguing that while a deal might be necessary for the smaller Fiat Chrysler it is not worth the considerable integration challenges to the larger company. Indeed $17 billion market cap-Fiat has very little technology that VW doesn't already have in house. And with the Porsche-Piech families owning more than half of VW, there's no chance of a deal happening unless the families are on board.
But the situation in Germany has obviously changed dramatically. It is worth noting that last summer reports surfaced that Ferdinand Piech, who was chairman of Volkswagen until losing a power struggle with Winterkorn earlier this year, had held talks with Fiat's controlling shareholders the Agnelli family about a potential combination.
Volkswagen (VLKAY) Scandal Opens Door to Possible Fiat (FCAU) Takeover - TheStreet
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