Fiat Positioning Itself for Majority Ownership Stake in Chrysler

On Thursday, Fiat S.p.A. CEO Sergio Marchionne announced that the Italian automaker has enough cash on hand to increase its stake in Chrysler Group to a controlling 51 percent. Earlier this month, Marchionne indicated that Fiat would only be able to increase its ownership stake in Chrysler from the current 25 percent share to 35 percent.

During a call with analysts, Marchionne said Fiat has sufficient case to fund its annual investments and also exercise its option to acquire an additional 16 percent of Chrysler Group.

In a report released on Thursday, the Italian automaker stated that it has 15.9 billion euros ($21.8 billion) in available cash. Fiat is expected to pay anywhere from $900 million to $4.4 billion for its additional 16 percent ownership share in Chrysler.

Earlier this month, Fiat increased its holdings in Chrysler from 20 percent to 25 percent. The increase came as the U.S. automaker received approval to build fuel-efficient engines at its Dundee, Michigan plant. In 2009, as Chrysler underwent restructuring bankruptcy, the federal government agreed to allow Fiat to rescue the troubled automaker on the condition that it meet three benchmarks, one of which was the production of higher efficiency engines.

The next hurdle for Fiat will be to sell $1.5 billion worth of Chrysler products outside the North American market and receive signed agreements from at least 90 percent of its Latin American dealers to carry the Chrysler brand.

The third benchmark is the development of a compact vehicle capable of delivering 40 mpg, based on a Fiat platform.

Marchionne said that he is confident that the company will meet all three requirements this year. That would leave one obstacle left to overcome before the Italian automaker could increase its holdings in Chrysler to 51 percent – Chrysler must first repay its bailout loans to both the U.S. and Canadian governments.

To achieve this goal, Chrysler is considering an initial public offering. According to Marchionne, Chrysler has already met with Goldman Sachs and other investment banks to discuss the possibility of new financing to raise approximately $7.5 billion in obligations to the governments of Canada and the U.S.

According to UBS AG analyst Philippe Houchois, Fiat could pay anywhere from $900 million to $1.7 billion for the additional 16 percent share of Chrysler prior to the IPO. After the listing, he estimates the same 16 percent share could be valued at between $1.9 billion and $4.4 billion.

On Thursday, Fiat announced that its fourth-quarter earnings increased 26 percent to 615 million euros before taxes, interest and one-time charges.

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