Bloomberg News

Fiat Buys Rest of U.S.’s Chrysler Stake, Right to UAW Shares

June 03, 2011

(Updates with analyst comments starting in fourth paragraph, CEO comments from eighth.)

June 3 (Bloomberg) -- Fiat SpA will pay $500 million for the U.S. government’s remaining 6 percent stake in Chrysler Group LLC, ending the Treasury’s involvement in the automaker as Fiat moves to consolidate control.

The U.S. Treasury said it will receive an additional $60 million as part of a deal for Fiat to acquire the government’s rights to buy a union trust fund’s stake in Chrysler. The Canadian government will get $15 million from that part of the transaction, the Treasury said yesterday in a statement.

The purchase of the U.S. stake will take Fiat’s holding in the Auburn Hills, Michigan-based carmaker to 52 percent. Chief Executive Officer Sergio Marchionne expects to get an additional 5 percent stake in the fourth quarter in return for developing a fuel-efficient car for Chrysler.

“There’s no question that Marchionne wants control and doesn’t want the interference of any kind of stake,” said Paul Newton, an analyst at IHS Automotive in London. “Chrysler’s value is likely to increase, so he may as well get on with it.”

Fiat rose as much as 31.5 cents, or 4.4 percent, to 7.42 euros and was up 3.5 percent as of 2:26 p.m. in Milan trading, valuing the company at 9.07 billion euros ($13.1 billion).

“The reaction in Fiat stock shows that investors believe an IPO of Chrysler is less likely,” said Alessandro Frigerio, a fund manager at RMJ Sgr in Milan, which owns shares of Fiat Industrial SpA and Exor SpA, Fiat’s largest shareholder. “As Fiat becomes a proxy of Chrysler, the best way to invest is to buy Fiat shares.”

‘One Entity’

With the new option to buy all of the Chrysler shares held by the United Auto Workers’ retiree health-care trust, Marchionne doesn’t need to hold an initial public offering.

“The real issue for me is not necessarily the IPO,” Marchionne said in a Bloomberg Television interview ahead of President Barack Obama’s planned visit to a Chrysler plant in Toledo, Ohio. “Ultimately, we need to look at one entity on a combined basis, and whether it’s an IPO of Chrysler in the U.S. to get it done or an expansion of Fiat’s shareholding base, we’re open to all options.”

Marchionne is in talks with the Canadian government to buy its 1.7 percent stake. That purchase would leave just Fiat and the union trust, which holds about 41 percent, as Chrysler shareholders. The value of the trust’s stake, based on the price of the U.S. stake, is about $3.42 billion.

Easy IPO Option

“The objective here is to find a way to deal with the other shareholder in Chrysler,” said Marchionne. “We need to find a way to monetize that interest and the IPO still remains the easiest way for us to put money in the trust.”

The U.S. government, with this deal and previous loan repayments, interest and canceled commitments, will have recovered $11.2 billion of the $12.5 billion it gave Chrysler in the bailout. The Treasury said it is unlikely to recover the remaining $1.3 billion.

“As Treasury exits its investment in Chrysler, it’s clear that President Obama’s decision to stand behind and restructure this company was the right one,” Treasury Secretary Timothy F. Geithner said in a statement.

Fiat boosted its holding in Chrysler to 46 percent last week after the U.S. carmaker repaid $7.6 billion in U.S. and Canadian government loans. The Turin, Italy-based company said it paid $1.3 billion for the additional 16 percent stake. The purchase of shares and options from the U.S. will close after regulatory approval, the Italian carmaker said.

Marchionne Moves

The quick purchase of a majority stake in Chrysler reflects the pace at which Marchionne has taken the U.S. carmaker from deep losses to a position where it could break even and succeed, Maryann Keller, principal of a self-titled consulting firm in Stamford, Connecticut.

“Sergio accomplished what many people thought was impossible,” Keller said. “He got great terms on the deal because no one believed it would work.”

Fiat said in a filing yesterday that it had enough cash on hand to buy the U.S.’s stake and that it has rights to raise its holding beyond 70 percent.

Before yesterday, Chrysler had said Fiat held options that included acquiring 40 percent of the original stake held by the UAW trust that pays for retirees’ health care. The option is exercisable from July 1, 2012, to Dec. 31, 2016, and in amounts of as much as 8 percent in any six-month period, according to the filing.

Model Milestones

Fiat gained a 20 percent Chrysler holding as part of the U.S. automaker’s government-backed restructuring in 2009. In exchange for sharing management and technology, as well as reaching operational milestones, Fiat receives as much as 35 percent of Chrysler without paying any cash. Marchionne has said he expects the final milestone, worth a 5 percent stake, to be reached by year’s end.

Marchionne is pushing Chrysler to raise its global sales this year by 32 percent to 2 million and turn an annual profit of $200 million to $500 million.

Chrysler had first-quarter net income of $116 million, its first profit since bankruptcy. Global sales rose 18 percent.

--With assistance from Deirdre Bolton in New York, Mark Clothier in Detroit, Marco Bertacche in Milan, Chris Reiter in Berlin, and Ola Kinnander in Stockholm. Editors: Kevin Orland, Jamie Butters, David Risser

To contact the reporters on this story: Tim Higgins in Detroit at thiggins21@bloomberg.net; David Welch in Detroit at dwelch12@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net


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