Fiat Must Pay $342 Million for Chrysler Stake, Trust Says

Fiat SpA (F), the automaker planning to merge with Chrysler Group LLC, must pay at least $342 million to boost its ownership stake to almost 62 percent, the U.S. automaker’s minority shareholder said in a court filing.

The amount sought by the United Auto Workers’ retiree health-care fund is 145 percent more than the $139.7 million that Turin, Italy-based Fiat said the additional Chrysler holding should be worth in an earlier court filing. Fiat sued Sept. 26 in Delaware Chancery Court to confirm the price owed to the health-care trust.

Chief Executive Officer Sergio Marchionne has said Fiat’s ability to complete a full merger with Auburn Hills, Michigan- based Chrysler is limited by a costly turnaround plan for Fiat announced last month. The 60-year-old executive, who leads both automakers, has said Fiat still plans to use call options that were part of Chrysler’s 2009 bankruptcy and now are in dispute.

“We’re quite willing and capable and able and we’re standing by our call options to exercise them as they become due,” Marchionne said on Chrysler’s quarterly conference call Oct. 30. He said he’s still targeting the “unification” of Fiat and Chrysler by 2015.

Call Options

Fiat has said that it will increase its controlling stake in Chrysler to 62 percent after completing the first call option purchase from the trust. The Delaware Chancery Court may rule on the matter by the end of the year, Marchionne said in the conference call.

Richard Gaeselli, a Fiat spokesman, didn’t immediately respond to an e-mail seeking comment on the trust’s filing yesterday.

As part of Chrysler’s 2009 bankruptcy, Fiat was granted the call options to purchase a portion of the trust’s stake every six months through June 2016. The agreement covered 40 percent of the trust’s holdings.

Fiat isn’t able to access Chrysler’s cash until a full merger of the two companies is completed. Fiat reported 20 billion euros of available liquidity at the end of the third quarter, down from 22.7 billion euros ($25.4 billion) as of June 30.

Turnaround Plan

Fiat last month presented a plan to turn around its European operations that are generating wider losses and led the automaker to cut its 2014 profit goal by 31 percent to 5.2 billion euros. Other European automakers such as PSA Peugeot Citroen also are struggling as industrywide sales head for their biggest annual decline in 19 years.

The trust’s lawyers filed a response to Fiat’s suit claiming the voluntary employees benefit association (VEBA) violated an agreement to sell the shares.

The VEBA’s attorneys also filed counterclaims to Fiat’s suit, arguing that the automaker sought to pay only “a fraction of” the shares’ fair-market value, the lawyers said in the filing.

Sales of the shares at Fiat’s price “is not in the interests of retirees and their dependents who rely on the VEBA to fund health-care benefits,” the lawyers said.

At issue in the case is the agreement’s methods for assessing the shares’ value given Chrysler’s rebound, Richard Hilgert, an analyst for Morningstar Equity Research in Chicago, said in a telephone interview yesterday.

“What the UAW is trying to do is get the court to look at what the performance of Chrysler has been since Marchionne and his management team took it over,” Hilgert said. “The cash flows that are being generated out of Chrysler now are such that the UAW feels a more appropriate valuation for the company would be the higher amount that they’re proposing.”

The case is Fiat North America LLC v. UAW Retiree Medical Benefits Trust, 7903, Delaware Chancery Court (Wilmington).

To contact the reporters on this story: Jef Feeley in Wilmington, Delaware, at jfeeley@bloomberg.net; Craig Trudell in Southfield, Michigan, at ctrudell1@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net