Fiat SpA (F) moved to tighten its control of Chrysler Group LLC as Chief Executive Officer Sergio Marchionne looks to complete a four-year effort to merge the Italian and American automakers.
Fiat exercised an option to buy an additional 3.3 percent of the Auburn Hills, Michigan-based company, it said today in statement. Fiat placed a value on the stake that’s 82 percent more than a disputed earlier tranche. That deal has been held up by a U.S. court as the union trust that owns the shares seeks a higher price.
The Italian company intends to reach an agreement with United Auto Workers’s voluntary employees beneficiary association on the acquisition of the remaining stake in Chrysler “as soon as possible,” Marchionne, chief executive officer of both carmakers, told reporters in Turin today, when asked if Fiat plans to ink a deal before the board meets to review first-half results, scheduled for July 30.
Fiat owns 58.5 percent of Chrysler, while the VEBA, a medical-benefits trust for the U.S. carmaker’s retirees, holds the remaining 41.5 percent. Fiat has been exercising options since mid-2012 to buy holdings of a little more than 3.3 percent from the trust every six months under an acquisition agreement. It has yet to take possession of those shares while a judge in Delaware considers how much Fiat should pay for the initial tranche.
Fiat rose as much as 3.3 percent to 5.57 euros and was up 3.1 percent at 3:02 p.m. in Milan trading. The stock has surged 46 percent this year, valuing the company at 6.94 billion euros ($8.91 billion).
Based on “a market multiple” applied to Chrysler’s earnings before interest, taxes, depreciation and amortization, Fiat calculated that it has to pay $254.7 million for the latest stake in Chrysler.
The price is still below what the trust is seeking for shares in the option that was exercised in July 2012. The trust, which disputes Fiat’s valuation methods, has said the first 3.3 percent tranche should be worth as much as $342 million. Fiat says it’s worth $139.7 million. Ownership of the stock gained through the three options exercised so far would raise Fiat’s holding to 68.5 percent.
The step-by-step purchases are intended to lead to full control of Chrysler that would enable Marchionne to merge the companies to compete with global industry leaders Toyota Motor Corp. (7203), General Motors Co. (GM:US) and Volkswagen AG. (VOW)
Fiat asked Delaware Chancery Court Judge Donald Parsons last year for a ruling in the valuation dispute. Marchionne has estimated the process would be completed by the end of September. The judge may call for a trial, which would potentially push back a final decision for as long as a year, U.S. law professors said in June.
Fiat gained control of Chrysler in 2009 after the third-largest U.S. automaker went bankrupt during the credit crunch. The maker of Chrysler, Dodge and Jeep vehicles has recovered and become Fiat’s most reliable profit generator as the Italian company struggles to end losses in Europe that totaled 704 million euros ($903 million) in 2012 amid a collapse in the region’s car market.
Fiat’s net income, including minority holdings, totaled 1.41 billion euros that year. Without Chrysler, Fiat’s losses would have exceeded 1 billion euros.
Marchionne said last month that Fiat was in talks with the trust about buying the stake and is seeking to complete a deal before a potential Chrysler initial public offering requested by the labor group is held. The talks are “fundamentally” about price, he said.
Fiat may raise as much as $10 billion from banks to increase its stake in Chrysler and to refinance both companies’ debt, people familiar with the matter said in May. As part of those talks, Marchionne refinanced about $6.8 billion in loans for Fiat and Chrysler June 21.
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