The article discusses how in the year to May 25th 2015 the shares in Fiat Chrysler rose by 45%. Many commentators have put this down to a strong positive reaction from investors to CEO Sergio Marchionne’s declared strategy to merge Fiat Chrysler with another major automobile manufacturer.
You are to choose two of the following three tasks (25 marks each):
- You are required to critically discuss the impact of cost of capital & capital structure on the ability of companies to generate acceptable returns for shareholders. Your answer should display a thorough and extensive engagement with appropriate academic literature and come to an informed judgement regarding the ability of managers to adjust their capital structures to generate higher returns for shareholders both generally (i.e. for all companies) and specifically through following CEO Sergio Marchionne’s declared strategy for Fiat Chrysler.
- You are required to critically evaluate the literature regarding the success or failure of merger and acquisition activity and conclude with an informed judgement as to whether the evidence would suggest that shareholders should welcome or be wary of M&A activity generally (i.e. for all companies), and CEO Sergio Marchionne’s declared strategy for Fiat Chrysler specifically.
- You are required to come to a judgement regarding the ability of investors to judge the value of their equity share investments when investing in the stock market. Your answer should specifically show an engagement with the academic literature regarding both the efficiency of the stock market and share valuation. Your answer should conclude with recommendations as to how current holders of Fiat Chrysler shares should value their shares given CEO Sergio Marchionne’s declared merger strategy.
(50 Marks Total)