April 21, 2024

DealBook: Fiat to Buy Full U.S. Stake in Chrysler

Chrysler 300 at the Detroit auto show.Andrew Harrer/Bloomberg NewsChrysler 300 at this year’s Detroit auto show.

7:02 p.m. | Updated

DETROIT — The Italian carmaker Fiat said Friday that it intended to buy the United States government’s full stake in Chrysler within 10 business days, giving it majority ownership of Chrysler.

The purchase, announced three days after Chrysler paid back its outstanding loans from the Treasury Department, would end the government’s involvement in Chrysler a little more than two years after the carmaker emerged from bankruptcy. It also would return Chrysler to foreign control four years after the dissolution of its merger with Daimler of Germany.

A Treasury spokesman, Mark Paustenbach, confirmed that the department had received notice from Fiat that it would buy the shares, but he declined to comment further.

Fiat and the Treasury will negotiate the purchase price, or have several investment banks determine a fair value if they cannot agree.

Fiat would hold 52 percent of Chrysler after obtaining the government’s shares. Under its agreement with the federal government, Fiat was given the option to buy the Treasury share within 12 months of Chrysler paying back its loans.

By the end of the year, Fiat said it expected to own 57 percent of the carmaker, which is based in Auburn Hills, Mich. The partnership agreement of the companies automatically gave 5 percent of Chrysler to Fiat when they begin producing a car rated at 40 miles per gallon. Fiat originally owned 20 percent of Chrysler and received 10 percent more as a result of helping Chrysler sell vehicles overseas and produce a fuel-efficient engine based on Fiat technology in the United States.

The chief executive of Fiat and Chrysler, Sergio Marchionne, has said he expects to have an initial public offering of Chrysler shares either late this year or in 2012, but Fiat’s decision to buy the government’s stake could affect those plans. Fiat has an option to raise its investment to more than 70 percent by buying a portion of the stake owned by a trust fund that pays for unionized retirees’ health care costs.

On Tuesday, Fiat paid $1.3 billion to buy an additional 16 percent of Chrysler, increasing its ownership to 46 percent, after Chrysler repaid $7.6 billion it had borrowed from the American and Canadian governments.

“We are changing both the image and the substance of our group,” Mr. Marchionne said at the loan repayment ceremony. “And we are regaining the faith of the public at large and, even more importantly, of our customers.”

The Treasury has yet to recover about $2 billion of the $10.5 billion it lent to Chrysler in 2008 and 2009. Some of the money went to the portion of the carmaker — known as “old Chrysler” — that remained in bankruptcy, and is not expected to be repaid. President Obama is scheduled to visit a Chrysler plant in Toledo, Ohio, next week to highlight the company’s turnaround and loan repayment.

Chrysler expects to be profitable this year for the first time since its bankruptcy, a major milestone for a company that came close to being liquidated before the government stepped in to prevent its collapse. It earned $116 million in the first quarter, ending a streak of losses dating to 2006, and its sales and market share in the United States have increased as a result of vastly improved models like the Jeep Grand Cherokee sport utility vehicle.

The Treasury still owns 26 percent of another Detroit automaker, General Motors. It plans to reduce its stake later this year, though it might delay that sale in the hopes of receiving a better price.

Fiat’s Notice of Intent to Buy Out U.S. Stake in Chrysler

Article source: http://dealbook.nytimes.com/2011/05/27/fiat-plans-to-buy-treasurys-stake-in-chrysler/?partner=rss&emc=rss

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