Bloomberg News

Fiat Says It Has Enough Cash to Buy Remainder of Chrysler

April 09, 2013

Fiat SpA (F), the Italian carmaker that controls Chrysler Group LLC, said it has enough resources already to buy the remaining stake in the unit from an employee group, and won’t sell new shares to finance a transaction.

Fiat would consider disposing of some assets to control debt in the event the carmaker acquires full ownership of Chrysler from the United Auto Workers retiree health-care fund, or VEBA, Chief Executive Officer Sergio Marchionne said at the annual shareholders’ meeting in the company’s hometown of Turin.

“If we ever reach a deal with VEBA to buy the remaining stake, we have enough cash for it,” Marchionne said today. Fiat may “monetize assets” to maintain its financing, he said, without specifying what businesses it may sell.

Marchionne is relying on Auburn Hills, Michigan-based Chrysler, where he’s also CEO, to sustain group earnings as he works to end losses at Fiat’s mass-market brands in Europe that exceeded 700 million euros ($916.7 million) last year. Fiat, which would have posted a 1.04 billion-euro loss in 2012 without Chrysler, still plans to boost trading profit to as much as 4.5 billion euros in 2013 from 3.81 billion euros in 2012.

Fiat rose 1.6 percent to 4.04 euros in Milan in the biggest jump since March 22. The stock has gained 6.5 percent this year, valuing the carmaker at 5.05 billion euros.

Deal ‘Clarity’

There will probably be “clarity” on the “inevitable” merger of Fiat and Chrysler by the end of the year, Marchionne said. The carmakers are likely to be part of a single company by June 2014, when Marchionne will complete his 10th year as CEO of the Italian group, he said.

Fiat owns 58.5 percent of Chrysler and VEBA owns the other 41.5 percent. Financing talks with banks are under way, and Marchionne said on March 5 that a valuation process for VEBA’s holding has started. A U.S. court will probably rule in a separate case by the end of June on the amount Fiat must pay for part of the UAW retiree health-fund stake, he said today.

The manufacturer is approaching banks to refinance a 1.95 billion-euro credit line before completing the Chrysler deal, people familiar with the matter said last month.

Cash Positions

Excluding Chrysler, Fiat had 9.1 billion euros of cash and 1.95 billion euros of un-drawn credit lines at the end of 2012, with net debt from industrial activities of 5.05 billion euros. Chrysler had 8.8 billion euros of cash and 985 million euros of un-drawn credit lines, with net debt of 1.5 billion euros.

Fiat will take stems in the “medium to long term” to give the two manufacturers a stable capital base, Marchionne told reporters today after the annual meeting. A share sale or assets disposals are the only way to strengthen capital, he said.

“The capital structure of the group has to be looked at for the long term, if we increase leverage by about 2.5 billion euros to try to close the deal” with VEBA, Marchionne said.

Marchionne, 60, has so far resisted Wolfsburg, Germany- based Volkswagen AG (VOW)’s interest in buying Fiat’s Alfa Romeo brand. The Italian manager, who grew up in Canada, has said Fiat may sell a stake in its Magneti Marelli car-parts division, and it doesn’t need to dispose of part of its holding in supercar manufacturer Ferrari.

An asset that may possibly be available is the company’s remaining 2.8 percent holding in Fiat Industrial SpA (FI), the truck and agricultural-equipment maker it spun off to shareholders in 2011, the CEO said.

Keeping Supercars

Ferrari isn’t for sale, even with “spasmodic” interest from “German friends,” Marchionne said.

Fiat will review its forecasts for 2013 at the end of April as industrywide car sales in Europe are on pace for a sixth consecutive annual slump, Marchionne said.

A decline in European sales “would be worse than the forecasts we indicated in January as our base for 2013 targets,” he said. “I don’t think we will review our global targets, but the geographic distribution of them may change.”

The CEO’s comments indicate Fiat is “walking away from 2013 profit targets,” David Arnold, a sales specialist at Credit Suisse in London, said today in a report to clients. Fiat’s operating losses in Europe may widen to 750 million euros this year, and “could be worse” than that projection.

Marchionne’s turnaround plan for Fiat in Europe calls for 16 upscale cars, including an Alfa Romeo sport-utility vehicle, a small SUV from Chrysler’s Jeep brand and six models at the luxury Maserati division. The new vehicles will help fill capacity at under-used Fiat assembly lines in Italy.

“While other carmakers in deep crisis have announced job cuts and plant closures, we won’t,” Fiat Chairman John Elkann said at the annual meeting. “We will keep our workforce,” said Elkann, citing a motto by of his late grandfather, former CEO Gianni Angelli,that “Fiat is too small and must grow.”

To contact the reporter on this story: Tommaso Ebhardt in Turin at tebhardt@bloomberg.net

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


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