Morgan Stanley Restricts Coverage as Marchionne Eyes GM Deal

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Sergio Marchionne
FCA Chief Executive Officer Sergio Marchionne. Photographer: Andrew Harrer/Bloomberg

Morgan Stanley restricted coverage of General Motors Co. and Fiat Chrysler Automobiles NV by analyst Adam Jonas because GM, a longstanding advisory client, disclosed that FCA approached it about a merger, said two people familiar with the matter.

The restrictions, imposed Friday, mean Jonas can’t give recommendations or price targets on the companies. When it became public that FCA Chief Executive Officer Sergio Marchionne approached GM CEO Mary Barra about discussing a merger, the bank decided as a matter of policy to restrict his coverage, said the people, who asked not to be identified because they aren’t authorized to speak publicly on research policy. Morgan Stanley would probably end up working for GM if Marchionne makes any progress in his efforts to press for a deal, which GM doesn’t want, the people said.

Fiat Chrysler, the London-based automaker with primary operations in the U.S. and Italy, has hired an investment bank to talk to investors about their interest in pressuring Barra to discuss a merger, people familiar with the matter said this week. GM doesn’t yet have Morgan Stanley approaching investors about the matter because the company doesn’t feel shareholder pressure to merge with FCA, said the people.

Morgan Stanley’s ties to GM go back many years. President Dan Ammann and board member Stephen Girsky, who served as an adviser to former CEO Rick Wagoner, both worked for Morgan Stanley. The New York-based investment bank participated in GM’s 2009 restructuring in bankruptcy court, helped lead GM’s 2010 initial public offering and worked on the automaker’s defense when former U.S. Treasury official Harry Wilson and four hedge funds pressured Barra for a stock buyback earlier this year.

That effort also led to a restriction on Jonas’s GM ratings, according to data compiled by Bloomberg. They were also restricted in 2012 when GM announced an alliance with PSA Peugeot Citroen.

Merger Support

Jonas has been one of the few equity analysts supporting the idea of GM participating in consolidation. In a May 28 research note, he said the automaker’s buyback announcements weren’t boosting the shares and that the Detroit-based company might want to consider a merger like the one suggested by Marchionne.

“We can envision a bull case of $90 supported by significant cost savings in excess of $1 billion” annually, Jonas wrote, adding that, “we are not in a position to assign any level of likelihood to these scenarios.”

CNBC reported earlier Friday that the ratings were restricted. GM spokesman David Roman declined to comment on the matter and referred questions on Jonas to the bank. Jonas declined to comment on the matter. Gualberto Ranieri, a Fiat Chrysler spokesman, also declined to comment on the bank’s move.

GM shares rose 0.5 percent to $35.71 Friday, and FCA gained 0.4 percent to $15.92. FCA has risen 37 percent this year, while GM gained 2.3 percent.

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