Fiat SpA (F) rose to the highest in almost 22 months as investors see a merger approaching of the Italian carmaker with its Chrysler Group LLC unit amid talks with banks for as much as $10 billion in funding for the deal.
Fiat jumped as much as 3.5 percent to 6.14 euros, the first time the price has exceeded 6 euros since Aug. 4, 2011, and was trading up 3.1 percent at 4:52 p.m. in Milan, the best performance on Italy’s benchmark FTSEMIB Index. (FTSEMIB) Volume exceeded the three-month daily average by 68 percent. The stock’s 61 percent gain this year is the biggest on the eight-company Bloomberg Europe Autos Index, valuing Fiat at 7.65 billion euros ($9.91 billion).
Bank of America Corp., Deutsche Bank AG, Goldman Sachs Group Inc. and BNP Paribas SA (BNP) are among institutions discussing lending Turin-based Fiat the money to buy the 41.5 percent of Auburn Hills, Michigan-based Chrysler held by the United Auto Workers’ retiree health-care trust, people familiar with the matter said May 29. A merger is a key step in efforts by Sergio Marchionne, who runs both carmakers, to create a manufacturer with the scale to compete with industry leaders Toyota Motor Corp. (7203), General Motors Co. (GM) and Volkswagen AG. (VOW)
“Marchionne’s plan looks reachable, so we expect the stock to rise also in the medium term,” said Vincenzo Longo, an analyst at IG Group in Milan.
Fiat has accumulated a 58.5 percent holding since taking control of Chrysler in 2009 as the U.S. company emerged from bankruptcy. Marchionne has a target of completing the purchase of the remaining stake by the end of the summer, the people said. Other banks could also take part in the financing, one of the people said.
A merger would create a manufacturer grouping the mass-market Fiat, Chrysler, Jeep and Dodge auto brands with the Maserati and Ferrari supercar marques. Fiat will probably wait for a ruling in a legal dispute with the health-care trust over the value of the labor group’s Chrysler stake before moving forward, Chairman John Elkann said yesterday at the annual shareholders meeting of Fiat’s dominant shareholder, Exor SpA.
Fiat has received oral agreements at this point from some of the banks, while no final deal has been signed, the people said. Representatives for Fiat and the four banks declined to comment.
The Italian carmaker plans a two-step transaction, first buying the trust’s stake, and later refinancing the debt of both manufacturers at lower interest rates, the people said. Fiat may pay as much as $3.5 billion for the rest of Chrysler, UBS AG estimates. The two carmakers had 7.1 billion euros of net industrial debt combined at the end of March.
One option being explored is to create a new company in the U.S., merge Fiat and Chrysler into it and issue shares in the combined entity, one of the people said. Current Fiat owners would exchange their shares for a stake in the new company, the person said.
Exor, the investment vehicle that holds the founding Agnelli family’s 30 percent Fiat stake, will support the combination, Elkann, who is also chairman of the holding company, said yesterday.
Backing by Exor of a capital increase “would help Fiat not only to get the resources spent to buy Chrysler’s minority stake but even to strengthen the balance sheet of the new company,” Gabriele Gambarova, an analyst at Akros in Milan, wrote in a report to clients today. Gambarova estimates Fiat and Chrysler may raise as much as $5 billion in a capital increase after the merger.
Elkann also dismissed any idea that Marchionne will leave the group in 2015.
“Having spoken with Marchionne, I know he will stay with us for many years to come,” Elkann said yesterday when asked whether Marchionne would step down two years from now.
Marchionne and Elkann reiterated today to Italian Industry Minister Flavio Zanonato that Fiat, the country’s biggest manufacturer, doesn’t plan to shut plants or fire workers there, the Economic Development Ministry said in a statement.
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