Fiat May Boost Chrysler Stake to More Than 50% Before IPO, Marchionne Says
Fiat SpA, the Italian carmaker that owns 20 percent of Chrysler Group LLC, may boost the holding to more than 50 percent before the U.S. automaker’s initial public offering, the two companies’ chief executive officer said.
“I think it is possible. I don’t know whether it is likely, but it is possible that we’ll go over the 50 percent mark if Chrysler decides to go to the markets in 2011,” Sergio Marchionne, 58, told reporters at the Milan stock exchange today. “It will be advantageous if that happens.”
Fiat received the stake as part of Auburn Hills, Michigan- based Chrysler’s 2009 bankruptcy reorganization. It expects to get an additional 15 percent this year when Chrysler makes a small engine in the U.S. and meets sales objectives outside of North America. Fiat has an option to increase the holding to 51 percent, buying an additional 16 percent, after Chrysler repays U.S. and Canadian government loans.
“It looks cheaper for Fiat to get 51 percent of Chrysler before the IPO,” said Philippe Houchois, a London-based analyst at UBS AG, who estimates that Fiat could save $1 billion to $2.7 billion if it exercises the option before a Chrysler listing. “It’s a positive scenario for Fiat shares.”
Marchionne said today that there is currently no plan to merge Fiat and Chrysler.
“A legal merger is not going to change our lives,” he said. He reiterated that a Chrysler IPO could take place in the second half of this year.
The CEO spoke at the Milan exchange as Fiat Industrial SpA, the truck and tractor company that was spun off from Fiat, began trading. The spinoff, announced on April 21, allows Marchionne to focus on carmaking and foster further alliances.
“This is a very important moment for Fiat, because it represents at the same time a point of arrival and a point of departure,” Marchionne said in front of Fiat executives, bankers and reporters. “Faced with the great transformations in place in the market, we could no longer continue to hold together sectors that had no economic or industrial characteristic in common.”
Unlike Daimler AG, which keeps its Mercedes-Benz luxury-car operations and the truck unit under the same group, Fiat said that different earnings cycles, capital requirements and returns on capital argue for a separation of the industrial operations from automaking.
Fiat Industrial, whose main assets are truckmaker Iveco and CNH Global NV, a maker of agricultural equipment, traded at 9 euros at the 5:30 p.m. close of trading in Milan, an increase of 3 percent from a reference price set by the Italian exchange. Fiat, whose remaining assets include the namesake brand as well as Ferrari and Maserati luxury units, closed at 7.03 euros, up 5 percent from the reference price.
CNH, which trades in New York, added 75.7 cents, or 1.6 percent, to $48.50 at 12:46 p.m.
Marchionne has said that Fiat is open to a partner for the industrial unit, helping fuel speculation that Daimler may be interested in a linkup. Daimler, the world’s largest maker of heavy trucks, said as recently as Dec. 16 that the Stuttgart, Germany-based company isn’t in talks to buy Iveco.
Outside the Milan bourse, Case New Holland tractors and Iveco trucks lined up on Piazza Affari to mark the biggest reorganization in Turin, Italy-based Fiat’s 111-year history.
The price of buying the additional 16 percent before a Chrysler IPO will be determined by the average multiple based on earnings before interest, taxes, depreciation and amortization of global automakers and won’t exceed the multiple for Fiat’s stock, according to the Italian company. If the U.S. carmaker is listed by the time of the stake purchase, Fiat will pay market price.
Fiat may pay $900 million to $1.7 billion for the stake before a Chrysler IPO while the same stake could be worth between $1.9 billion and $4.4 billion after the listing, according to UBS’s Houchois.
“Despite much excitement surrounding Marchionne’s statements about raising Fiat stake in Chrysler to 51 percent ahead of an IPO in the second half of 2011, we remain skeptical about its ability to address the contractual hurdles detailed in the LLC agreement and achieve this event ahead of an IPO,” Credit Suisse analyst Erich Hauser wrote in a note today.
Marchionne said today that Fiat doesn’t need to sell assets to finance the acquisition of additional Chrysler shares. “I have no plan to sell assets but all options are on the table,” he said.
Debt Vs. Liquidity
Fiat is expected to have as much as 2 billion euros ($2.7 billion) of net industrial debt and 10 billion euros of liquidity, according to a presentation posted on the company’s website for an investor meeting in the U.S. last month.
Fiat will go ahead with a plan to reorganize its Mirafiori plant in Turin if the majority of its workers approve the deal signed with unions, the CEO said.
Italy’s largest manufacturer won backing from all but one labor union for a 1 billion-euro plan to revamp Mirafiori in exchange for labor concessions Dec. 23.
To contact the reporter on for this story: Tommaso Ebhardt in Milan at firstname.lastname@example.org