Bloomberg News

Fiat to Raise Chrysler Stake to 61.8% in Full Merger Push

July 03, 2012

Fiat SpA CEO Sergio Marchionne

Sergio Marchionne, chief executive officer of Fiat SpA. Photographer: Nelson Ching/Bloomberg

Fiat SpA (F) will boost its Chrysler Group LLC stake to 61.8 percent, taking a step closer to a full merger with the American carmaker.

Italy’s biggest manufacturer will exercise an option in the coming weeks to buy an additional 3.3 percent from the United Auto Workers’ retiree health-care trust, or VEBA, the Turin, Italy based carmaker said in a statement.

Fiat, which did not provide the purchase price today, will pay less than 200 million euros ($252 million) for the added holding, Chief Executive Officer Sergio Marchionne said in an interview last month. Fiat will have paid in the end about $2.3 billion for its stake in the American carmaker.

Marchionne, who plans to combine the two manufacturers to boost sales to more than 100 billion euros by 2014, is relying on the American carmaker’s profit as Fiat struggles to end losses in Europe. Without Chrysler, the Italian company would have posted a first-quarter net loss.

“Fiat has the intention to get to 100 percent of Chrysler even if talks with VEBA are not in an advanced stage,” said Emanuele Vizzini, chief investment officer at Investitori Sgr in Milan. “North America, with Brazil, is crucial for Fiat as Europe is worrisome.”

Fiat rose as much as 11 cents, or 2.8 percent, to 4.04 euros and was up 2 percent to 4.01 euros as of 11:39 a.m. in Milan trading. The stock has gained 13 percent this year, valuing the carmaker at 5.01 billion euros.

Full Merger

Fiat doesn’t plan to complete the full acquisition of Chrysler this year and the carmaker is not currently in talks with VEBA to buy the remaining 38.2 percent stake it owns, Marchionne said in the interview.

“It’s in VEBA’s interest to negotiate with us,” Marchionne said June 14 in Madrid. “There won’t be any spectacular news in the second half” on the Chrysler purchase as “it’s important now to observe what will happen in Europe.”

Fiat has the right to buy the entire stake for $4.25 billion, plus 9 percent annual interest calculated from January 2010. The Italian carmaker may pay about 3 billion euros to buy the rest of Chrysler, Max Warburton, an analyst at Sanford Bernstein wrote in a note to clients May 21. “This is an excessive sum for me,” Marchionne said last month.

“We argue that Fiat would like to buy the entire stake held by the VEBA more quickly and that it is expecting VEBA’s dealing position to weaken in order to get a better deal,” Gabriele Gambarova, an equities analyst at Banca Akros in Milan, wrote in a note to clients today.

Cutting Investments

The union’s retiree health-care trust last month appointed a new director to represent its interests as Marchionne pursues the full combination. Erickson Perkins, an adviser to UAW president Bob King, became a director effective June 10. The 57- year-old has served in King’s office since July 2010 as director of the union’s strategic research department.

Fiat has delayed the introduction of new models in Europe, and is cutting investment in the region by 500 million euros this year because Marchionne, 60, doesn’t expect any recovery in the second half. Fiat’s first-quarter operating losses in the region almost doubled to 207 million euros.

Marchionne, who tonight will present the new 500L wagon in Turin, said July 1 that Fiat can look at its investments in Europe with “some level of stability” after European leaders agreed last week to address flaws in their bailout programs to ease the sovereign-debt crisis.

To contact the reporter on this story: Tommaso Ebhardt in Turin via the Milan newsroom at 4231 or tebhardt@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net


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