February 29, 2024

DealBook: Fiat to Raise Chrysler Stake to 46 Percent

10:57 a.m. | Updated Fiat said Thursday that it would spend $1.3 billion to add to its controlling stake in Chrysler Group, and aims to have a majority shareholding this year.

Fiat, which had already increased its stake to 30 percent this month, is exercising its right to acquire another 16 percent once Chrysler pays off the roughly $7 billion it owes the American and Canadian governments.

Fiat, based in Turin, and Chrysler, based in Auburn Hills, Michigan, are working with their banks to refinance that debt before the end of June. The Italian company will then exercise a $1.3 billion equity call option for the 16 percent stake, with the funds adding to Chrysler’s capital. Fiat will draw on its cash reserves of more than 14 billion euros, or $20.4 billion, to purchase the stake.

Sergio Marchionne, the chief executive of both companies, said in a conference call with analysts that Fiat expected to obtain another 5 percent of Chrysler this year, raising its total to 51 percent and giving Fiat “effective legal control.” Fiat has had management control of Chrysler since a 2009 deal with the Obama administration gave Fiat a 20 percent stake in the foundering American company in exchange for technology and aid.

In the meantime, Mr. Marchionne said, raising Fiat’s shareholding to 46 percent will allow the two companies to consolidate their results for accounting purposes and will ‘‘provide a much needed base for a fuller operational integration of these businesses.”

Asked if he was talking about a full merger, Mr. Marchionne said: ‘‘I’ve always said from a governance stance that it doesn’t make sense to have two separate companies.’’ He cautioned that he could not predict ‘‘how we might get there,’’ stressing that integration at the business level was more important than legal integration.

Mr. Marchionne had been saying for some time that he hoped to hold an initial public offering of Chrysler shares as early as this year, but he has been more cautious recently. Speaking on that subject in the call Thursday, he said, “I think a lot of it depends on market conditions and the performance of Chrysler.”

And he noted that any I.P.O. was subject to discussions with Chrysler’s Voluntary Employee Benefit Association, or VEBA, which received a majority of the near-worthless stock in Chrysler at the time of the government rescue in exchange for the money it was owed by the company.

As part of the 2009 deal with the Obama administration, the Italian company agreed to a series of performance targets, which, once met, would allow it to increase its holdings. On Jan. 10 this year, it increased its stake to 25 percent, after meeting the first target, laying the groundwork for U.S. production of an engine based on Fiat’s FIRE family.

On April 12, Fiat said it had met the second target, producing Chrysler sales of at least $1.5 billion outside of North America, and raised its stake to 30 percent. It said it expected to meet the last of the three targets — U.S. sales of a Fiat platform car that gets 40 miles per gallon, or 5.88 liters per 100 kilometers — by the end of the year.

Shares of Fiat, which trade in Milan, were up 3.4 percent in afternoon trading.

On Wednesday, Fiat said first quarter revenue rose 7.1 percent from a year earlier, to 7.0 billion euros, or $10.2 billion, on shipments of 518,600 passenger cars and light commercial vehicles, down 2.6 percent from the same period last year. Net profit rose 24 percent to 37 million euros. It will break out Chrysler earnings early next month.

Article source: http://dealbook.nytimes.com/2011/04/21/fiat-to-raise-chrysler-stake-to-46-percent/?partner=rss&emc=rss

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