Talk about intriguing.
Is Volkswagen really in discussions to buy Fiat Chrysler Automobiles?
Now there's a deal that would reshape the global automotive landscape -- and quickly. And consider the consequences for Sergio Marchionne's resurgent Chrysler Group, which has just embarked on a strategy to radically grow sales by the end of the decade.
If it happens -- and the parties do deny the report by a German magazine -- it's because the fixations of Ferdinand Piech may line up perfectly with the needs of the family that controls Fiat Chrysler.
A source inside the VW supervisory board chairman's inner circle says Piech has a grand plan that goes beyond his success in building Europe's No. 1 automaker. He envisions a global giant second to none and wants to revive the fabled German brand Auto Union as the name of the holding company.
He also wants to do it sooner rather than later. But with VW battling head-to-head with Toyota and General Motors to be No. 1 in the world, the obsessively driven 77-year-old needs a shortcut.
Acquiring the Agnelli-Elkann family's 30 percent controlling stake in FCA would give Piech his Auto Union. With more than 14 million sales a year, it would leave Toyota and GM fighting for second place, 4 million units behind.
Analysts swung into action last week after Manager, the German business magazine, reported that VW has held talks with Fiat Chrysler's owners about purchasing the Italian carmaker.
"The simple deal logic is straightforward," London-based analyst Arndt Ellinghorst of ISI Group wrote in a note to investors. "Chrysler -- better Jeep and Dodge -- could fix VW's U.S. problems; Alfa could replace the ailing Seat brand; Fiat Europe is basically the 500 product family plus LCVs; Latin America could be sold, potentially to a Chinese buyer."
How does the deal look from the Italian side? The Agnelli-Elkann dynasty, now comprising about 150 descendants, probably faces a tough call.
Should the family put its trust in the highly ambitious Fiat Chrysler relaunch plan that calls for five years without dividends -- betting on a brighter future made possible by the rapid global expansion of Alfa, Maserati and Jeep?
Or does it take $5 billion or $6 billion now -- and keep the crown jewel Ferrari, which not only makes fantastic cars but delivers more than $475 million in operating profit a year?
VW, Fiat and Exor, the family unit that is Fiat Chrysler's controlling shareholder, all denied the report.
And analysts see many risks. But they also cite compelling reasons why an agreement would make sense for both sides.
For starters, it is a doable deal. VW had $24 billion in cash at the end of March. Paying a 20 to 50 percent premium to buy Exor's controlling 30 percent stake in Fiat Chrysler -- roughly $5 billion to $6 billion -- is easily manageable.