Fiat may up Chrysler stake

Sergio Marchionne.

Sergio Marchionne.

Published Apr 18, 2011

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Fiat expects to pay around $1.5 billion (R10.3 billion) for an additional 16 percent stake in Chrysler, which it hopes to buy later in 2011 after the US automaker repays government loans.

Italy's biggest industrial group is also working to raise about €1.5 billion euros (R14.7 billion) through a credit facility and is expected to launch the deal in coming months.

The credit facility is planned for the Italian automaker's general liquidity purposes and is expected to remain undrawn.

Fiat, which currently holds a 30 percent stake in Chrysler, aims to obtain majority control of the US automaker by the end of 2011 - one of chief executive Sergio Marchionne's overarching goals as he tries to integrate the two car companies.

As part of the 2009 bailout deal agreed with Washington, Fiat was given management control and a minority stake in Chrysler. Under the terms of the US Treasury agreement, Fiat can exercise an option to buy a 16 percent stake in Chrysler if the loans it owes the US and Canadian governments fall below $4 billion (R27.5 billion).

Chrysler is close to launching a debt refinancing package to repay all of the roughly $7 billion (R49 billion) it owes the US and Canadian governments and the deal could be completed by June.

Repaying the loans stemming from its historic 2009 bailout would mark a crucial step for Chrysler as the No.3 US automaker tries to distance itself from the controversial rescue by the Obama administration and rebuild consumer confidence in the brand.

A financial integration of the two automakers, each of which struggled in its own markets, could also make Chrysler a better story for potential stock investors when the company eventually goes public later in 2011 or early in 2012.

Chrysler's initial public offering, which was originally expected to take place in the second half of 2011, could be pushed into 2012 as Fiat first wants to secure majority control of the US automaker, a possibility Marchionne suggested late in March.

But before Fiat can take control, Chrysler must repay its loans to the US and Canadian governments in full.

Chrysler owes $5.8 billion (R39 billion) to the US government and $1.3 billion (R9 billion) to the Canadian government, according to the company's fourth-quarter earnings release.

Analysts say Fiat could buy the 16 percent stake in Chrysler for between €1 billion and €1.2 billion (R9.8 billion - R11.8 billion).

One said of the $1.5 billion valuation of that option: “There's a lot of different ways to look at the valuation but it would be in the right ballpark.”

Fiat declined to comment on the cost of the additional 16 percent in Chrysler and on the planned credit facility.

Chrysler has selected four banks to spearhead the debt refinancing deal and is aiming to launch the debt offering after Chrysler reports first-quarter earnings, probably in May.

Marchionne, the Italian-Canadian who runs both Fiat and Chrysler, has said Chrysler would refinance the government debt by June 2011. - Reuters

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