Subject category:
Strategy and General Management
Published by:
IBS Case Development Center
Length: 7 pages
Data source: Published sources
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Abstract
In 2000 General Motors' (GM) rival, DaimlerChrysler, was planning to takeover Fiat. To keep its rival at bay, GM entered into an alliance with Fiat. The agreement included a put option clause for Fiat that could force GM to buy out Fiat, irrespective of GM's interests, any time between 2004 and 2009. In January 2005, when Fiat wanted to exercise its put option, GM refused to buy Fiat. Under such circumstances, the alliance was broken and GM had to pay Fiat $2 billion as an exit fee. This case study helps to discuss the benefits that GM derived out of the episode that cost the company a total of $4 billion - initial investment plus the price to pull itself out of the put option.
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Abstract
In 2000 General Motors' (GM) rival, DaimlerChrysler, was planning to takeover Fiat. To keep its rival at bay, GM entered into an alliance with Fiat. The agreement included a put option clause for Fiat that could force GM to buy out Fiat, irrespective of GM's interests, any time between 2004 and 2009. In January 2005, when Fiat wanted to exercise its put option, GM refused to buy Fiat. Under such circumstances, the alliance was broken and GM had to pay Fiat $2 billion as an exit fee. This case study helps to discuss the benefits that GM derived out of the episode that cost the company a total of $4 billion - initial investment plus the price to pull itself out of the put option.