Fiat SpA to buy out Chrysler Group LLC by 2013, experts indicate

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Photograph of the Fiat corporate logo

Fiat will likely buy out Chrysler by 2013. (Photo Credit: CC BY-SA/SurfAst/Wikipedia)

Italian automaker Fiat SpA, which currently owns 58.5 percent of Chrysler Group LLC, has taken a major step toward complete ownership of the iconic American automotive brand. The Detroit News reports that Fiat’s shareholders approved a simplified capital structure with a single class of common stock, which would make a total buy-out of Chrysler much easier.

Fiat wants 100 percent of Chrysler stock

Sources close to Fiat SpA and Chrysler Group LLC have indicated that Fiat is on course to obtain 100 percent of Chrysler stock, a plan that was confirmed Thursday by Fiat and Chrysler CEO Sergio Marchionne before reporters after Fiat’s annual shareholders meeting in Turin, Italy.

“The mechanism is subject to negotiations and market conditions,” said Marchionne. A full merger in 2012 is “highly unlikely.”

Marchionne, 59, is reportedly prepared to combine the two automotive manufacturers in order to increase overall sales by $132 billion by 2014. If Fiat exercises stock options it holds on Chrysler, it could buy 3.3 percent of the American automaker by the second half of 2012.

Banking on Chrysler in 2011

Fiat had a difficult time in the European market, losing nearly $655 million in 2011. Consumer financial crisis was largely to blame for the decline in automotive sales. Fiat relied upon Chrysler for all of its net income, as U.S. sales were much more brisk.

“With the crisis in Europe and the recovery of the U.S car market, Marchionne should hurry up and complete the merger as soon as possible and look at the capital market in the U.S. to fund new investments,”said Wolfram Mrowetz, chairman of Milanese investment firm Alisei SIM.

Preparing for the merger

Thursday, Fiat shareholders voted to convert savings and preferred stock over to common stock. The plan, which has the support of Italian investment firm and Fiat controlling interest Exor SpA, is intended to pave the way for the eventual Fiat-Chrysler merger.

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Before the deal can occur, Fiat SpA must reach an agreement with United Auto Workers union as to what will be done with Chrysler’s 41.5 percent stake in the union’s retiree healthcare trust, VEBA. The Detroit News notes that Fiat has the option of purchasing the holding for $4.25 billion, plus 9 percent annual interest dating from January 2010. Marchionne noted that current market value of the VEBA holding is actually “well below” that price.

Assuming the deal is inevitable, a major question that will have to be answered afterward is where the merged automaker will have its headquarters, Detroit or Italy.

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The Detroit News


Wall Street Journal

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