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China's Great Wall confirms interest in Fiat Chrysler

[August 21, 2017] By Brenda Goh and Norihiko Shirouzu

SHANGHAI/BEIJING (Reuters) - China's Great Wall Motor Co Ltd is interested in bidding for Fiat Chrysler Automobiles (FCA), a company official said on Monday, confirming reports it is pursuing all or part of the owner of the Jeep and Ram truck brands.

There has been speculation over Chinese interest in FCA since Automotive News reported last week that an unidentified "well-known Chinese automaker" made an offer earlier this month, triggering a jump in FCA's Milan-listed shares.

"With respect to this case, we currently have an intention to acquire. We are interested in (FCA)," an official at Great Wall Motor's press relations department told Reuters by phone. He declined to give his name and gave no further details.

FCA Chief Executive Sergio Marchionne is seeking a partner or buyer for the world's seventh-largest automaker to help it manage rising costs, comply with emissions regulations and develop technology for electric and self-driving cars.

In a statement, Fiat Chrysler said it had not been approached by Great Wall Motor, and was busy with implementing its current five-year business plan.

A move for FCA by Great Wall Motor, China’s largest sport utility vehicle (SUV) and pick-up manufacturer, would be audacious, however.

At a time when Beijing's attitude to outbound deals has cooled, if Great Wall bought FCA, which has a market value of almost $20 billion, it would be by far China's largest overseas automotive industry deal - and possibly one of its largest ever overseas purchases - dwarfing Geely's 2010 billion acquisition of Volvo cars.

FCA is also larger than Great Wall, which has a market value of closer to $16 billion.

Earlier on Monday, two people familiar with the matter said Great Wall Motor had asked for a meeting with FCA, with the aim of making an offer for all or part of the group. Also on Monday, citing an email from Great Wall Motor President Wang Fengying, Automotive News reported Great Wall had contacted FCA to express interest specifically in the Jeep brand.

The industry publication cited a Great Wall spokesman confirming interest, but saying the Chinese automaker had not made a formal offer or met with FCA's board.

"Our strategic goal is to become the world's largest SUV maker," Automotive News quoted the spokesman as saying. "Acquiring Jeep, a global SUV brand, would enable us to achieve our goal sooner and better (than on our own)."

FCA shares rose 3.9 percent to 11.12 euros in Milan, outperforming a flat market. Great Wall Motor shares closed up almost 3 percent in Shanghai.

"Jeep is the most logical choice since (Great Wall) wants to be the largest SUV maker in the world," said Yale Zhang, head of Shanghai-based consultancy Automotive Foresight.

Ram could be an option, but "the Jeep brand is recognized globally. I think Great Wall Motor is eyeing a global strategy, not just the United States," Zhang added.

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A specialist trader works at the post where Fiat Chrysler Automobiles is traded on the floor of the New York Stock Exchange (NYSE) in New York, U.S., March 8, 2017. REUTERS/Brendan McDermid

KEY BRANDS IN FOCUS

Marchionne told analysts last month that a new five-year strategy - to be unveiled next year - could include asset sales.

While he acknowledged that Jeep, Ram, Maserati and Alfa Romeo could exist on their own, he appeared to pour cold water on the idea that any of them would be sold - at least not without leaving behind a less profitable "stump" that may struggle on its own.

Jeep SUVs and Ram trucks, the two most coveted of Fiat Chrysler's brands, have become a major profit engine and a driver for Fiat's North American operations.

Jeep, which traces its roots to the iconic World War Two military vehicle, targets sales of 2 million vehicles in 2018, up from 1.4 million in 2016. Marchionne has said deliveries from the SUV brand could eventually rise to as many as 7 million a year as demand for sporty vehicles is set to keep rising.

In a recent note, Morgan Stanley estimated Jeep's enterprise value at 23 billion euros ($27 billion) - nearly 150 percent of the whole of FCA's market value.

A move for FCA or one of its main brands would be challenging to finance, and would have to overcome serious regulatory hurdles - but it would boost Great Wall's position in the U.S. market and globally.

It would also allow it to get around the politically charged issue of manufacturing in the United States to sell there, something that would otherwise take decades to build up.

Great Wall's founder and chairman Wei Jianjun saw opportunity when China began to fall in love with SUVs, and invested heavily in its Haval brand, cutting back on sedans. Within a few years, it was a top seller, with its H6 model topping sales charts going back to 2014.

The people familiar with the matter told Reuters that Great Wall had been making plans for the United States for some time, mainly by upgrading some key products and improving branding.

It earlier this year officially launched a new "Wei" brand, named after the chairman, of potentially U.S.-market ready vehicles.

(Reporting by Norihiko Shirouzu in BEIJING, Brenda Goh in SHANGHAI, and Giulia Segreti and Agnieszka Flak in MILAN, with additional reporting by Shanghai newsroom; Editing by Ian Geoghegan)

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