PROXY PAPER
FIAT S.P.A.
Borsa Italiana: F
ISIN: IT0001976403
MEETING DATE:
01 AUGUST 2014
RECORD DATE:
23 JULY 2014
PUBLISH DATE:
17 JULY 2014
INDEX MEMBERSHIP:
SECTOR:
INDUSTRY:
OWNERSHIP
COMPANY PROFILE
CONSUMER DISCRETIONARY
AUTOMOBILES
COUNTRY OF TRADE:
ITALY
COUNTRY OF INCORPORATION:
ITALY
VOTING IMPEDIMENT:
NONE
DISCLOSURES:
NONE
COMPANY DESCRIPTION
Fiat S.p.A. designs, engineers, manufactures,
distributes, and sells automobiles and light commercial
vehicles, engines, transmission systems,
automotive-related components, metallurgical products,
and production systems.
DJSI WORLD; DJSI EUROPE; FTSE MIB;
S&P EUROPE 350
REMUNERATION
PREVIOUS BOARD
VOTE RESULTS
2014 SPECIAL MEETING
PROPOSAL
ISSUE
BOARD GLASS LEWIS
1.00
Elect Glenn Earle
FOR
FOR
2.00
Redomestication from Italy to the Netherlands
FOR
FOR
CONCERNS
APPENDIX
SHARE OWNERSHIP PROFILE
SHARE BREAKDOWN
1
SHARE CLASS
SHARES OUTSTANDING
Ordinary Shares
1,216.4 M
VOTES PER SHARE
1
INSIDE OWNERSHIP
0.00%
STRATEGIC OWNERS**
30.05%
FREE FLOAT
69.95%
SOURCE CAPITAL IQ AND GLASS LEWIS. AS OF 07-JUL-2014
TOP 20 SHAREHOLDERS
HOLDER
OWNED* COUNTRY
30.05% Italy
INVESTOR TYPE
1.
Giovanni Agnelli e C. S.a.p.az.
2.
Baillie Gifford & Co.
4.65% United Kingdom Traditional Investment Manager
Corporations (Private)
3.
Norges Bank Investment Management
2.04% Norway
Traditional Investment Manager
4.
BlackRock, Inc.
1.63% United States
Traditional Investment Manager
5.
The Vanguard Group, Inc.
0.98% United States
Traditional Investment Manager
6.
Grantham, Mayo, Van Otterloo & Co. LLC
0.94% United States
Traditional Investment Manager
7.
Capital Research and Management Company
0.74% United States
Traditional Investment Manager
8.
Oldfield Partners LLP
0.69% United Kingdom Traditional Investment Manager
9.
ClearBridge, LLC
0.41% United States
Traditional Investment Manager
10.
Eurizon Capital S.A.
0.37% Luxembourg
Traditional Investment Manager
11.
Bessemer Investment Management LLC
0.25% United States
Traditional Investment Manager
12.
State Street Global Advisors, Inc.
0.22% United States
Traditional Investment Manager
13.
Schroder Investment Management Limited
0.20% United Kingdom Traditional Investment Manager
14.
Neptune Investment Management Limited
0.19% United Kingdom Traditional Investment Manager
15.
Dimensional Fund Advisors LP
0.18% United States
Traditional Investment Manager
16.
Credit Suisse Asset Management (Switzerland)
0.17% Switzerland
Traditional Investment Manager
17.
Wellington Management Company, LLP
0.16% United States
Traditional Investment Manager
18.
AP Fonden 2
0.14% Sweden
Government Pension Sponsor
19.
Morgan Stanley Investment Management Inc.
0.14% United States
Traditional Investment Manager
20.
Anima S.G.R.p.A
0.13% Italy
Traditional Investment Manager
*COMMON STOCK EQUIVALENTS (AGGREGATE ECONOMIC INTEREST) SOURCE: CAPITAL IQ. AS OF 07-JUL-2014
**CAPITAL IQ DEFINES STRATEGIC SHAREHOLDER AS A PUBLIC OR PRIVATE CORPORATION, INDIVIDUAL/INSIDER, COMPANY CONTROLLED FOUNDATION,
ESOP OR STATE OWNED SHARES OR ANY HEDGE FUND MANAGERS, VC/PE FIRMS OR SOVEREIGN WEALTH FUNDS WITH A STAKE GREATER THAN 5%.
SHAREHOLDER RIGHTS
MARKET THRESHOLD
COMPANY THRESHOLD1
VOTING POWER REQUIRED TO CALL A SPECIAL MEETING
5.0%
5.0%
VOTING POWER REQUIRED TO ADD AGENDA ITEM
2.5%
2.5%
1N/A INDICATES THAT THE COMPANY DOES NOT PROVIDE THE CORRESPONDING SHAREHOLDER RIGHT.
F August 01, 2014 Special Meeting
2
Glass, Lewis & Co., LLC
1.00:
ELECT GLENN EARLE
PROPOSAL REQUEST:
Election of one director
RECOMMENDATIONS & CONCERNS:
PRIOR YEAR VOTE RESULT: N/A
ELECTION METHOD:
NOT UP- Agnelli A.
Bigio J.
Brandolini d'Adda T.
Carron R.
Cordero di Montezemolo L.
Elkann J.
Marchionne S.
Wheatcroft P.
Majority
PROPOSAL SUMMARY
One candidate is up for election as director to serve a one-year term. If elected, his term would expire at the Company's
2015 annual meeting of shareholders.
The nominee was appointed by the board following the resignation of Gian Maria Gros-Pietro with effect from June 23,
2014. Pursuant to Italian law, the term of office of a director coopted by the board expires at the next general meeting of
shareholders.
BOARD OF DIRECTORS
NAME
UP
GLASS LEWIS
CLASSIFICATION
COMPANY
CLASSIFICATION
OWNERSHIP**
COMMITTEES
TERM TERM
START END
AUDIT REM NOM
Luca Cordero di Montezemolo*
Insider
1
Not Independent
N/D
John Elkann*
Insider 2
Not Independent
30%
Insider 3
Not Independent
Andrea Agnelli
Affiliated 4
Tiberto Brandolini d'Adda
Affiliated 5
Joyce Victoria Bigio
René Carron
Glenn Earle
Independent
Patience Wheatcroft
Independent
·Chairman
Sergio Marchionne*
·CEO
C = Chair, * = Public Company Executive,
YEARS
ON
BOARD
2003
2015
11
1997
2015
17
30%
2003
2015
11
Not Independent
30%
2004
2015
10
Not Independent
30%
2004
2015
10
Independent
Independent
N/D
2012
2015
2
Independent
Independent
N/D
2007
2015
7
Independent
N/D
2014
2014
0
Independent
N/D
2012
2015
2
6
C
C
= Withhold or Against Recommendation
1.
2.
3.
4.
Executive director.
Executive chairman. Member of the Agnelli family and chairman of Giovanni Agnelli & C. S.a.p.A. Chairman and CEO of Exor S.p.A.
CEO. Director of Exor S.p.A.
Member of the Agnelli family. Giovanni Agnelli & C. S.a.p.A., indirectly through Exor S.p.A., beneficially owns 30.06% of the Company's ordinary
share capital and voting rights. Director of Exor S.p.A. Has served on the board for more than nine years.
5. Vice chairman of Exor S.p.A. and general partner of Giovanni Agnelli & C. S.a.p.A. Has served on the board for more than nine years.
6. Appointed to the board on June 23, 2014.
**Direct, indirect or representational ownership of voting rights. Below 5% displays as Yes.
NAME
ADDITIONAL PUBLIC COMPANY DIRECTORSHIPS
Luca Cordero di Montezemolo
(4) Tod's S.p.A.; Unicredit S.p.A. ; Poltrona Frau S.p.A.; Kering SA
John Elkann
(2) Exor S.p.A.; CNH Industrial N.V.
Sergio Marchionne
(4) Philip Morris International Inc.; CNH Global N.V.; SGS Societe Generale de Surveillance SA ; Exor S.p.A.
Andrea Agnelli
(2) Exor S.p.A.; Juventus Football Club S.p.A
Tiberto Brandolini d'Adda
(1) Exor S.p.A.
F August 01, 2014 Special Meeting
3
Glass, Lewis & Co., LLC
Joyce Victoria Bigio
(1) Gentium S.p.A.
René Carron
None
Glenn Earle
None
Patience Wheatcroft
(1) St. James's Place plc
MARKET PRACTICE
INDEPENDENCE AND COMPOSITION
F*
REQUIREMENT
BEST PRACTICE
Independent Chairman
No
N/A
N/A
Board Independence
44%
At least one director; at least two 1/3 for all companies on
FTSE-MIB; at least two
directors if board consists of
independent directors for all other
more than seven members1
companies 2
Audit Committee Independence
100%
N/A
All non-executive; majority
independent; independent
chairman; if controlled company, all
independent members 2
Remuneration Committee Independence
100%; Independent Chair
N/A
All non-executive; majority
independent; independent
chairman 2
Nominating Committee Independence
67%
N/A
Majority independent2
Percentage of women on board
22%
1/3 (transitional provision: 1/5)1
N/A
Directors' biographies
Details regarding current directors and new nominees can be found on the Company’s website.
* Based on Glass Lewis Classification
1. Consolidated Law on Finance
2. Italian Corporate Governance
Code
Italian companies are traditionally governed by a board of directors, which includes both executive and non-executive
directors and can delegate some of its powers to a managing director or to an executive committee. According to the
Corporate Governance Code ("Code") released by the Italian Stock Exchange, the number of non-executive directors
should be such that they can effectively participate in the decision-making process. Moreover, an adequate number of
non-executive directors should be independent. With respect to board committees, pursuant to the recommendations of
the Code, both the audit and remuneration committee should consist entirely of non-executive directors a majority of
whom should be independent. The nominating committee should be majority independent.
GLASS LEWIS ANALYSIS
We believe it is important for shareholders to be mindful of the following issues:
RESIGNATION OF GROS-PIETRO
As mentioned above, director Gian Maria Gros-Pietro resigned from the board effective June 23, 2014. The Company
states that Mr. Gros-Pietro's resignation is a result of the upcoming entry into force of EU Capital Requirements Directive
IV which limits the number of additional directorships that may be held by members of management of financial
institutions. Mr. Gros-Pietro is currently chairman of the management board of Intesa Sanpaolo S.p.A. ( Press Release.
June 15, 2014)
TAX RULINGS INVESTIGATION
On June 11, 2014, the Company announced that the European Commission has opened an investigation into a tax ruling
requested by the Company and issued by the Tax Authorities of Luxembourg in 2012 which relates to the calculation of
the taxable basis of its financing activities. The European Commission has highlighted concerns that such ruling could
have resulted in a more favorable tax treatment for the Company ( Press Release. June 11, 2014). More specifically, the
Commission is investigating whether or not Luxembourg's tax treatment of the Company, in particular the pricing of
transactions between company subsidiaries, represents unfair state aid. It has also opened investigation into the
corporate tax practices of other multinationals based in Ireland and the Netherlands (Croft, Adrian & Bergin, Tom. "EU
investigates tax rulings on Apple, Starbucks, Fiat". Reuters. June 11, 2014). The Company states that such tax rulings are
common practice and "[...] has no reason to believe that any favorable treatment was contemplated by the Tax Authorities
of Luxembourg in issuing such tax ruling, because in fact no such treatment was ever received" ( Press Release. June 11,
F August 01, 2014 Special Meeting
4
Glass, Lewis & Co., LLC
of Luxembourg in issuing such tax ruling, because in fact no such treatment was ever received" ( Press Release. June 11,
2014).
BOARD INDEPENDENCE
As noted above, in accordance with the Italian Corporate Governance Code, we normally recommend that the board
consist of a majority of non-executive directors. Furthermore, we generally believe that at least 50% of the board members
should be independent. We find that the composition of the current board does not meet this threshold with regard to the
number of independent directors given the ownership structure of the Company.
COMMITTEE CONCERNS
We note that following the resignation of Gian Maria Gros-Pietro, the audit and remuneration committees will only consist
of two members. We believe that key board committees should have a minimum of three members to perform its function
to shareholder satisfaction. We expect the board to nominate at least one additional director to the audit committee as
soon as practicable following the annual meeting. We will monitor this issue going forward.
ADDITIONAL DIRECTORSHIPS
Directors Marchionne and Cordero di Montezemelo are executives of the Company and serve on four other public
company boards each. We believe that the time commitment required by this number of board memberships may preclude
these directors from fulfilling their responsibilities to this Company's shareholders.
RECOMMENDATION
We do not believe there are substantial issues for shareholder concern as to the nominee.
Accordingly, we recommend that shareholders vote FOR the nominee.
The Company discloses the following biographical information for director Glenn Earle, who joined the board during the past year:
Glenn Earle is a Senior Advisor at Affiliated Managers Group Limited (AMG) and a Board Member and Trustee of the Royal National Theatre and of
Teach First, where he is a member of the Finance Committee. He is also Chairman of the Advisory Board of Cambridge University Judge Business
School. Mr. Earle retired in December 2011 from Goldman Sachs International, where he was most recently a Partner Managing Director and the Chief
Operating Officer. He previously worked at Goldman Sachs in various roles in New York, Frankfurt and London from 1987, becoming a Partner in 1996.
In 1979, he joined Grindlays Bank Group and from 1980 to 1985 worked in the Latin America Department in London and New York, leaving as a Vice
President. He is a graduate of Emmanuel College, Cambridge and of Harvard Business School, where he earned an MBA with High Distinction and was
a Baker Scholar and Loeb, Rhoades Fellow. His other activities include membership of the Development Advisory Forum of Emmanuel College,
Cambridge, The Higher Education Commission and The William Pitt Group at Chatham House. His previous responsibilities include membership of the
Board of Trustees of the Goldman Sachs Foundation and of the Ministerial Task Force for Gifted and Talented Youth. Mr. Earle has been an
independent member of the Board of Directors of Fiat S.p.A. since 23 June 2014.
F August 01, 2014 Special Meeting
5
Glass, Lewis & Co., LLC
2.00:
REDOMESTICATION FROM ITALY TO THE NETHERLANDS
SUMMARY
Fiat S.p.A. (“Fiat” or the “Company”) seeks shareholder approval of a largely technical merger transaction that will result
in the Company changing its jurisdiction of organization from Italy to the Netherlands.
The transaction is part of a larger reorganization of Fiat that includes moving the Company’s primary equity listing to the
New York Stock Exchange (“NYSE”) following completion of the Company’s acquisition of the 41.5% interest it did not
already own in Chrysler Group LLC (“Chrysler”) in January 2014 .
Under the terms of the proposed transaction, Fiat shareholders will receive 1.0 common share of Fiat Investments N.V. ( a
wholly owned subsidiary of Fiat organized under Dutch law to be renamed Fiat Chrysler Automobiles N.V. upon
effectiveness of the merger) (“FCA”) for each 1.0 Fiat ordinary share they hold.
Following completion, FCA will become the holding company of Fiat and FCA common shares are expected to be listed
on the NYSE, with trading commencing on the first business day following completion. FCA also intends to apply for
admission to listing and trading of the FCA common shares on the Mercato Telematico Azionario (“MTA”) organized and
managed by Borsa Italiana S.p.A.
Following completion, existing Fiat shareholders will hold the same percentage of FCA common shares as they held of
Fiat ordinary shares before the merger. The business carried out by FCA following the merger will be the same as the
business currently carried out by Fiat prior to the merger.
LOYALTY VOTING STRUCTURE
Under a loyalty voting structure of FCA, eligible FCA shareholders will have the right to receive 1.0 FCA special voting
share for each 1.0 FCA common share received in the proposed merger.
To be eligible, Fiat shareholders need to: (i) continuously own Fiat ordinary shares from the record date of the
extraordinary general meeting until effectiveness of the merger; (ii) be present or represented by proxy at the
extraordinary general meeting, regardless of how the vote on the merger proposal; and (iii) not exercise the cash exit
rights to which they may be entitled as specified under Italian law.
To participate in the loyalty voting structure, Fiat shareholders must complete and send to Fiat (or the attorney appointed
by Fiat) an election form and a power of attorney no later than 15 business days after the Fiat extraordinary general
meeting, and such election form must be countersigned by the relevant broker/authorized intermediary. The special voting
share election form and power of attorney for its shareholders will be made available on Fiat’s website.
Following completion of the merger, all FCA shareholders will be entitled to participate in the loyalty voting structure and
receive FCA special voting shares by holding FCA common shares continuously for at least three years at any time
following completion of the merger.
FCA special voting rights are generally not transferrable and must be surrendered to FCA for no consideration if the
associated FCA common shares are transferred by the holder. FCA special voting shares do not have any material
economic entitlements.
The loyalty voting structure is designed to effectively provide eligible long-term FCA shareholders with two votes for each
FCA common share held. The purpose of the loyalty voting structure is to reward long-term ownership of FCA common
shares and promote stability of the FCA shareholder base. FCA believes that the loyalty voting structure may enhance its
flexibility in pursuing future strategic growth opportunities, because the loyalty voting structure will mitigate the impact of
the dilution in the economic interest of Fiat’s controlling shareholder, Exor S.p.A. (“Exor”). FCA believes that Fiat has
greatly benefited from the long-term support of Exor and that the loyalty voting structure will enable such support to
continue in the future without hindering FCA’s ability to pursue external growth opportunities.
Exor currently holds a 30.1% interest in Fiat and has expressed its intention to participate in the loyalty voting structure
with respect to all of the FCA common shares it receives in the merger. Exor’s voting power in FCA following the merger
will depend on the extent to which other shareholders participate in the loyalty voting structure. If all shareholders
participate, Exor’s voting power would continue to be 30.1% and if no shareholders participate, its voting power could be
as high as approximately 46.2%, before considering exercise of any cash exit rights.
F August 01, 2014 Special Meeting
6
Glass, Lewis & Co., LLC
BOARD RATIONALE
In determining to recommend that shareholders support the proposed transaction, the board states, among other reasons,
the following: (i) the proposed merger and larger reorganization of the Company is expected to improve investor
perception and valuation of the Company, improve access to capital and expand strategic opportunities; (ii) redomiciling in
the Netherlands, which is a neutral jurisdiction with a favorable governance regime, will provide greater capital market
flexibility, is more attractive to investors in multinational enterprises and better reflects the international nature of the
Company and its shareholder base; (iii) redomiciling in the Netherlands could facilitate a broadening of the Company’s
shareholder base beyond its historically European-centric investor base; (iv) transferring the Company’s primary listing to
the NYSE will enhance liquidity, provide access to a deeper poor of equity and debt financing and allow the Company’s
shares to trade with other major automotive companies that also have a majority of sales and profitability in North
America; (v) listing on the NYSE will allow the Company to better engage U.S. retail and institutional investors seeking to
gain exposure to the business of Chrysler; (vi) a listing on the MTA will facilitate engagement by a pan-European investor
base and discourage divestment by Italian retail investors; (vii) the loyalty voting structure is designed to promote a strong
base of core shareholders and encourage new shareholders to invest for the long term, which can be effective in
promoting long-term stability of a business; (viii) the loyalty voting structure may provide additional flexibility for the
Company to pursue acquisition and strategic investment opportunities by reducing the impact of any dilution in the
economic interest of core shareholders; and (ix) strategic and financial alternatives, including maintaining the status quo,
were considered and deemed less favorable to shareholders than the proposed transaction, given the profile and capital
needs of the Company following the acquisition of Chrysler and the risks and uncertainties associated with such
alternatives.
BACKGROUND
In 2009, Fiat and Chrysler entered into a global strategic alliance through which Fiat assumed management responsibility
for Chrysler and received an ownership interest in Chrysler and rights to eventually acquire a controlling stake. By January
2012, following the acquisition of interests held by the U.S. Department of the Treasury and Canadian government, Fiat’s
interest increased to 58.5% and in January 2014 it acquired the remaining 41.5% from the UAW Retiree Medical Benefits
Trust.
In connection with the acquisition of Chrysler, Fiat’s business and capital needs changed significantly and its North
American operations grew to represent a majority of revenue and profitability. The Company considered that it would need
access to low-cost capital to fund growth initiatives and that the Company’s Italian headquarters and legal incorporation
and sole Italian equity listings were no longer adequate or reflective of the Company’s profile.
The Company reviewed various proposals with the assistance of legal and financial advisors and determined to redomicile
the Company in the Netherlands and to list its shares on the NYSE and the MTA. In January 2014, the board approved a
corporate reorganization and on June 15, 2014, it approved the proposed merger.
VOTE REQUIRED
Approval of the proposed transaction requires the affirmative vote of at least two-thirds of the votes cast by shareholders
present in person or represented by proxy at the extraordinary general meeting, provided that at least one-fifth of the
issued share capital is represented at the meeting.
Exor holds approximately 30.1% of the issued share capital of Fiat and has expressed its intention to vote to approve the
merger plan.
GLASS LEWIS ANALYSIS
In general, Glass Lewis believes that the board is in the best position to determine the appropriate jurisdiction of
incorporation for the company. When examining a management proposal to reincorporate to a different location, we
review the relevant financial benefits, generally related to improved corporate tax treatment, as well as changes in
corporate governance provisions, especially those relating to shareholder rights, resulting from the change in domicile.
Where the financial benefits are de minimis and there is a decrease in shareholder rights, we will recommend voting
against the transaction.
In this case, the Company intends to maintain a primary equity listing on the NYSE immediately following completion and
F August 01, 2014 Special Meeting
7
Glass, Lewis & Co., LLC
will thus be subject to NYSE listing requirements and Securities and Exchange Commission (“SEC”) reporting
requirements. This provides shareholders with some assurance that the Company will adhere to the relatively stringent
corporate governance and disclosure rules applicable to U.S.-listed companies. In addition, the Company intends to seek
a listing on the MTA and would be subject to listing rules of the Borsa Italiana and applicable Italian securities regulations.
Further, we believe incorporation in the Netherlands could improve investor interest in the Company, given that its
corporate legal structure is relatively well known by international investors.
While all shareholders will have the opportunity to participate in the loyalty voting structure, we are concerned that the
program primarily serves the interests of the Company’s controlling shareholder at the expense of minority shareholders.
Exor’s voting interest in the Company could increase from 30.1% to as much as 46.2%, giving it greater influence and de
facto veto rights over a number of actions requiring shareholder approval, including potential strategic transactions.
Nevertheless, we believe the proposed reincorporation is, on balance, in the best interests of shareholders as the
benefits of access to deeper and more robust capital markets and improved governance standards outweigh our concerns
regarding the potential increase in Exor’s voting power.
Accordingly, we recommend that shareholders vote FOR this proposal.
F August 01, 2014 Special Meeting
8
Glass, Lewis & Co., LLC
APPENDIX
Questions or comments about this report, GL policies, methodologies or data? Contact your client service representative or go to
www.glasslewis.com/issuer/ for information and contact directions.
DISCLOSURES
Glass, Lewis & Co., LLC is not a registered investment advisor. As a result, the proxy research and vote recommendations included in this report should
not be construed as investment advice or as any solicitation, offer, or recommendation to buy or sell any of the securities referred to herein. All
information contained in this report is impersonal and is not tailored to the investment strategy of any specific person. Moreover, the content of this report
is based on publicly available information and on sources believed to be accurate and reliable. However, no representations or warranties, expressed or
implied, are made as to the accuracy, completeness, or usefulness of any such content. Glass Lewis is not responsible for any actions taken or not
taken on the basis of this information.
This report may not be reproduced or distributed in any manner without the written permission of Glass Lewis.
DOW JONES SUSTAINABILITY INDEX
The Dow Jones Sustainability World Index, Dow Jones Sustainability North America Index, Dow Jones Sustainability Europe Index and Dow Jones
Sustainability Asia Pacific Index are a joint product of S&P Dow Jones Indices LLC and/or its affiliates and SAM Sustainable Asset Management AG
(“SAM”). Dow Jones® and DJ® are trademarks of Dow Jones Trademark Holdings LLC. UBS® is a registered trademark of UBS AG. S&P® is a
registered trademark of Standard & Poor’s Financial Services LLC. All content of the DJSI World © S&P Dow Jones Indices LLC or its affiliates and
SAM Sustainable Asset Management AG.
For information on Glass Lewis' policies and procedures regarding conflicts of interests, please visit: http://www.glasslewis.com/
LEAD ANALYSTS
Governance:
Patricia O' Donoghue
M&A and Contests: Hunter Patterson
F August 01, 2014 Special Meeting
9
Glass, Lewis & Co., LLC