Fiat Plans Next Chrysler Option Purchase Amid Court Case
Fiat SpA (F) plans to exercise an option to buy another 3.3 percent stake in U.S. carmaking unit Chrysler Group LLC from a union’s pensioner health-care fund amid a lawsuit over an earlier purchase.
“We’ll keep on doing what we’ve done in the past” under terms of an agreement to acquire Chrysler stock every six months from the United Auto Workers’ retiree health-care trust, Fiat Chairman John Elkann told reporters today in Milan. The Turin, Italy-based carmaker is maintaining a goal of combining with Chrysler into one company, though “when or how” it will happen, “we will see,” he said.
Fiat’s previous purchases from the trust total 6.6 percent since mid-2012, and it can exercise the next option starting July 1. The Italian company has yet to take ownership of the holding amid a lawsuit in a Delaware court over its value. Excluding the stake in dispute, Fiat owns 58.5 percent of Chrysler. The trust owns the remaining 41.5 percent.
Chief Executive Officer Sergio Marchionne, 61, has spent the past four years working to unify the companies to be more competitive with global industry leaders Toyota Motor Corp. (7203), General Motors Co. (GM) and Volkswagen AG. (VOW) The executive, who wants to merge the two carmakers “as soon as possible,” must first buy the remaining stake Chrysler from the trust. He said on June 7 that Fiat is negotiating with the union on a settlement.
“Talks are going on, and let’s let the discussion run its course,” Elkann said today.
The Italian carmaker asked Delaware Chancery Court Judge Donald Parsons last year to rule that a call-option agreement covering the first 3.3 percent holding acquired from the trust is worth $139.7 million. The trust puts the value as high as $342 million.
Marchionne, who is also CEO of Chrysler, has estimated the court case would be completed by the end of September. Parsons, now reviewing filings by the two sides, is likely to call for a trial before placing a value on the shares, according to legal experts including Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. That may extend the process by months.
“Courts take their time, so we await a decision with confidence,” Elkann said today, declining to estimate a date for any legal ruling.
Chrysler has become Fiat’s most reliable profit generator as the Italian company struggles to end losses in Europe that totaled 704 million euros ($917 million) last year. Without Auburn Hills, Michigan-based Chrysler, Fiat would have posted more than 1 billion euros in losses in 2012.
Fiat may raise as much as $10 billion from banks to increase its stake in Chrysler and to refinance both companies’ debt, people familiar with the matter said in May. As part of those talks, Marchionne refinanced $5.65 billion in loans for Fiat and Chrysler June 21.
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