December 8, 2023

DealBook: Fiat to Raise Its Chrysler Stake to 46%

A Fiat dealership in Milan.Luca Bruno/Associated PressA Fiat dealership in Milan. Fiat seeks “effective legal control” of Chrysler.

7:01 p.m. | Updated

Fiat, the Italian automaker, said on Thursday that it would raise its stake in the Chrysler Group to 46 percent and acquire a majority stake in the company this year.

Fiat increased its stake to 30 percent this month. It said it would pay $12.3 billion to acquire an additional 16 percent once Chrysler paid off the roughly $7 billion it owes the American and Canadian governments.

Fiat, based in Turin, Italy, and Chrysler, based in Auburn Hills, Mich., are working with their banks to refinance the debt before the end of June. Fiat will then exercise a $1.3 billion equity call option for the 16 percent stake, with the money adding to Chrysler’s capital. Fiat will draw on its cash reserves of more than 14 billion euros ($20.4 billion) to buy the stake.

Sergio Marchionne, the chief executive of both companies, said in a conference call with analysts that Fiat expected to obtain an additional 5 percent of Chrysler this year, raising its total to 51 percent and giving it “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 American company in exchange for technology and financial aid.

In the meantime, Mr. Marchionne said, raising Fiat’s stake to 46 percent will allow the two companies to consolidate their results for accounting purposes and “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,” emphasizing that integration at the business level was more important than legal integration.

Mr. Marchionne has 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 conference call, he said, “I think a lot of it depends on market conditions and the performance of Chrysler.”

He noted that any stock offering would be subject to discussions with Chrysler’s Voluntary Employee Benefit Association, which received a majority of the nearly 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 goals that, once met, would allow it to increase its holdings. On Jan. 10, Fiat increased its stake to 25 percent, after meeting the first target, laying the groundwork for American production of an engine based on Fiat’s FIRE family (for fully integrated robotized engine).

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 — sales in the United States of a Fiat platform car that gets 40 miles per gallon — by the end of the year.

Shares of Fiat, which trade in Milan, were up 4.6 percent in afternoon trading.

On Wednesday, Fiat said first-quarter revenue rose 7.1 percent, to 7 billion euros ($10.2 billion), from the period a year earlier. It shipped 518,600 passenger cars and light commercial vehicles in the quarter, down 2.6 percent from the period a year earlier. Net profit rose 24 percent, to 37 million euros.

It will break out Chrysler earnings next month.

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