Via Reuters

Frankfurt - Italian carmaker Fiat could secure financing by May for a possible buyout of the rest of Chrysler, two people familiar with the matter said on Tuesday. Fiat is in advanced talks with banks, which are expected to conclude next month, on financing to buy the 41.5 percent of Chrysler which is held by VEBA, the United Auto Workers' retirees' healthcare trust, the sources said.

Fiat is looking to raise roughly 3 billion euros ($4 billion) in new financing, said one of the sources, and is hoping to strike a deal with VEBA by early July. Fiat's chief executive Sergio Marchionne wants to merge the two carmakers to create the world's seventh-largest auto group, tapping Chrysler's cash flow to offset Fiat's losses in Europe and building economies of scale. A hearing in a U.S. court on Thursday could shed light on Chrysler's price tag, which is the subject of a legal battle between Fiat and VEBA.

Earlier this month Marchionnne said the automaker may need to raise capital in the medium- to long-term after the Chrysler buy, adding Fiat had enough cash to avoid a capital increase for the purchase itself. But later the same day he told a group of reporters Fiat may need to raise as much as 2.5-3 billion euros ($3.3-$3.9 bln) in connection with the buyout, without elaborating. Fiat declined to comment.

Although Fiat has cash reserves of about 9 billion euros ($11.91 billion) as of December 31, in practice it would need to raise finance to merge with Chrysler to maintain the new group's credit rating. VEBA's total 41.5 percent stake in Chrysler is worth an estimated $3.5-$4 billion, according to analysts.

In January VEBA said it would exercise its right to sell part of its Chrysler stake in an initial public share offer (IPO), and Chrysler asked banks to submit pitches for the offering in April. Bankers have been asked to prepare a "dual-track" sale leading either to the flotation of Chrysler shares owned by VEBA, or an agreed buyout of VEBA's stake by Fiat, people familiar with the matter have said.

Marchionne has made no secret of his desire to merge the two automakers and avoid an IPO, but has said he would be open to a market listing if Fiat and VEBA could not reach a deal. "The goal clearly is to resolve the matter this year," one of the sources on Tuesday said, adding that IPO preparations were already underway.

The U.S. court hearing this week could shed light on how far apart the two sides are from an agreement on price, and possibly provide the catalyst to start buyout talks and avoid an IPO, the sources said. At issue in the court dispute is the price Fiat should pay for a part of VEBA's Chrysler stake which is subject to a call option, with the two sides at odds over how to interpret a 2009 deal giving Fiat the right to buy 16.6 percent of Chrysler from VEBA in five stages.

While no final ruling is expected on Thursday or in the coming months comments from the judge may help bridge the gap between the two positions and accelerate out-of-court talks on a broader buyout deal, said one of the people familiar with the matter. "The April 25 hearing will likely give indication if there is a room for a possible agreement," the person said.