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Fiat Plans to Boost Chrysler Stake to 57 Percent Buying Shares From U.S. Treasury

May 28, 2011
3 min to read


Fiat SpA plans to buy the U.S. government’s remaining stake in Chrysler Group LLC by the end of 2011, boosting the Italian carmaker’s holding to 57 percent.


The U.S. Treasury has been notified of the plan to exercise an option to purchase the government’s 6 percent stake in the nation’s third-largest automaker, Turin, Italy-based Fiat said today in a statement.

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“They’re moving faster and more decisively than most investors anticipated,” said Max Warburton, a Sanford C. Bernstein & Co. analyst in London, who has a “market perform” rating on the stock. “It seems the plan is that Fiat-Chrysler will at some point be merged to create one firm.”


Fiat boosted its holding in Chrysler to 46 percent this week after the U.S. carmaker repaid $7.6 billion in U.S. and Canadian government loans, Bloomberg reported. Fiat expects to get an additional 5 percent stake in the fourth quarter in return for developing a fuel-efficient car for Auburn Hills, Michigan-based Chrysler.


The price for the shares will be negotiated between Fiat and the U.S. Treasury. If an agreement can’t be reached within 10 business days of the notice, the price will determined by investment-bank evaluations, Fiat said.


Chief Executive Officer Sergio Marchionne, who runs both automakers, said earlier this week that Fiat could boost its stake in Chrysler to more than 51 percent before an initial public offering of the U.S. automaker, as it seeks to buy the shares for less money. Fiat will consolidate Chrysler’s results starting June 1.


While Fiat and Chrysler have no set timing on their plan to merge to reduce costs and improve integration, the combination isn’t likely this year, Marchionne said May 25. Chrysler may sell shares to the public later this year or in 2012, depending upon market conditions and cash needs, he has said.

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The companies’ new models in the U.S. have included the revamped Jeep Grand Cherokee and the Fiat 500 subcompact. The Grand Cherokee increased U.S. sales 86 percent through April, according to researcher Autodata Corp. That helped Chrysler’s global sales rise 18 percent through April and contributed to a first-quarter profit of $116 million, the automaker’s first since exiting bankruptcy in 2009.


“I don’t know anyone who wouldn’t be pleased that Fiat is paying back the U.S. taxpayers,” said Jim Gillette, an analyst with Northville, Michigan-based IHS Automotive. “Chrysler is bringing on some really good product with the help of Fiat and will very likely be in pretty good shape here over the next decade.”


Fiat has options to increase its Chrysler holding to more than 70 percent, the U.S. company said this month in a filing with the U.S. Securities and Exchange Commission. Those options include the right to buy the Treasury’s remaining stake in the 12 months after government loans are repaid.


That would make an IPO of Chrysler less likely, Jochen Gehrke, a Deutsche Bank AG analyst, said in a note.


The option to acquire 40 percent of the original stake held by the UAW trust is exercisable from July 1, 2012, to Dec. 31, 2016, and in amounts of as much as 8 percent in any six-month period, according to a company filing.

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Eileen Wunderlich, a Chrysler spokeswoman, and Mark Paustenbach, a Treasury spokesman, declined to comment.


Fiat rose 12 cents, or 1.6 percent, to 7.20 euros in Milan today prior to the announcement, giving the company a market value of 8.88 billion euros ($12.7 billion).

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