Fiat Raises Chrysler Stake With New Dodge in Step Toward Merger

Updated on
Fiat Raises Chrysler Stake in Step Toward Merger
Sergio Marchionne, chairman and chief executive officer of Chrysler Group LLC, speaks to reporters at the Toledo Assembly Complex in Toledo, Ohio, U.S., on Wednesday, Nov. 16, 2011. Photographer: Jeff Kowalsky/Bloomberg

Fiat SpA expanded its controlling stake in Chrysler Group LLC, meeting the final target set by the U.S. government in the deal that rescued the U.S. carmaker from bankruptcy and taking a step toward a planned merger.

Fiat’s holding increased to 58.5 percent from 53.5 percent after the carmakers committed to produce a fuel-saving model in the U.S., the companies said today. Fiat ended up paying about $2 billion for the holding in the third-largest U.S. automaker.

The higher stake “represents repayment of the trust placed in Fiat to introduce its fuel-efficient cars and engines to the U.S. market,” Sergio Marchionne, chief executive officer of Chrysler and Turin, Italy-based Fiat, said in a statement. “The acquisition of a further 5 percent of Chrysler is a fundamental step in completion of the integration between our two groups.”

Marchionne plans to merge the two carmakers by the end of 2014 to reduce costs and achieve a target of more than 100 billion euros ($129 billion) in revenue as he struggles to end Fiat’s European losses, which analysts estimate at 800 million euros a year. Achieving the final target completes the reorganization plan set up by President Barack Obama in 2009.

Fiat’s larger stake, granted by the U.S. government, leaves the United Auto Workers union’s retiree health-care trust, a voluntary employee beneficiary association, with the remaining 41.5 percent.

“Fiat should work on fixing Italy before considering a final tie-up of Fiat and Chrysler,” said Erich Hauser, a Credit Suisse analyst in London, who’s ranked No. 1 by Bloomberg among analysts who cover Fiat based on a one-year return of the stocks they cover.

‘Low Value’

A merger this year “would likely attribute a very low value to Fiat meaning that the VEBA trust might end up with a larger chunk of the combined entity,” Hauser said.

Fiat rose as much as 1.8 percent to 3.82 euros in Milan trading and was up 0.4 percent at 9:58 a.m. in Milan, valuing the company at 4.7 billion euros. The stock lost 51 percent of its value over the past 12 months, the second-worst performance in the Euro Stoxx autos and parts index.

Marchionne said in November that neither the merger nor the acquisition of the VEBA stake were on agenda for 2012.

Fiat first took a 20 percent stake in June 2009 following a U.S. government bailout of the company. The Italian automaker has boosted its shareholding by helping the company achieve performance goals set under the agreement.

Fiat Platform

The final target was achieved after Auburn Hills, Michigan-based Chrysler met a fuel-economy test with a pre-production version of the Dodge Dart sedan and pledged to begin commercial assembly in the U.S., the carmakers said. The Dart is the first Chrysler model based on a Fiat platform.

The Dodge Dart is scheduled to be unveiled at the North American International Auto Show in Detroit on Jan. 9, Chrysler said in its statement. The sedan will be produced at a Chrysler assembly plant in Belvidere, Illinois, the company said.

The compact sedan will be built on Fiat’s “compact wide” platform, which is based on the architecture originally developed for the Alfa Romeo Giulietta. Sharing parts between models and brands is a key feature of the Fiat-Chrysler makeover. Future models will cut costs by sharing as much as two-thirds of the value of key parts with other cars in the group’s lineup.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE