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Fiat May Pay $1.5 Billion To Up Chrysler Stake

April 15, 2011
3 min to read


Italy's Fiat SpA expects to pay around $1.5 billion for an additional 16 percent stake in Chrysler, which it hopes to buy later this year after the U.S. automaker repays government loans, three people familiar with the matter said.


Italy's biggest industrial group is also working to raise about 1.5 billion euros ($2.17 billion) through a credit facility and is expected to launch the deal in coming months, according to one of the people familiar with Fiat's thinking.

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


Fiat, which currently holds a 30 percent stake in Chrysler, aims to obtain majority control of the U.S. 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 U.S. Treasury agreement, Fiat can exercise an option to buy a 16 percent stake in Chrysler if the loans it owes the U.S. and Canadian governments fall below $4 billion.


People familiar with the matter told Reuters on Thursday that Chrysler is close to launching a debt refinancing package to repay all of its roughly $7 billion owed to the U.S. and Canadian governments and the deal could be completed by June.


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

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A financial integration of the two automakers, both of which struggled in their own markets, could also make Chrysler a better story for potential stock investors when the company eventually goes public later this year or next.


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


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


Chrysler owes $5.8 billion to the U.S. government and $1.3 billion to the Canadian government, according to the company's fourth-quarter earnings release.


In a research note Friday, Banca IMI estimated that Fiat could buy the 16 percent stake in Chrysler for between 1 billion and 1.2 billion euros ($1.4 billion to $1.7 billion).

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"There's a lot of different ways to look at the valuation but it would be in the right ballpark," one of the sources said of the $1.5 billion valuation of that option.


Fiat declined to comment on the cost of the additional 16 percent in Chrysler and on the planned credit facility. The sources asked not to be identified because they were not authorized to speak with the media.


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, likely in May, sources said this week.


Marchionne, the Italian-Canadian who runs both Fiat and Chrysler, said earlier this week Chrysler would refinance the government debt by June.

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