Fiat Slides as Chrysler Purchase May Be Costlier

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Fiat SpA fell as much as 3.1 percent after a U.S. judge suggested that the Italian carmaker may have to pay more than expected to increase its stake in Chrysler Group LLC.

Fiat fell as much as 15 cents to 4.65 euros and was down 2.9 percent at 12:10 p.m. in Milan trading. It was the first decline in seven trading days. The stock has climbed 23 percent this year, giving the Turin-based company a market value of 5.83 billion euros ($7.58 billion).

The manufacturer may have to pay more than its $139.7 million offer in a call option to buy a 3.3 percent stake in Chrysler from the United Auto Workers retiree health-care trust, a judge suggested in court yesterday. Fiat has asked Delaware Chancery Court Judge Donald Parsons Jr. to help determine the value of the holding, which the trust contends is worth at least $342 million.

Fiat Chief Executive Officer Sergio Marchionne is awaiting the court decision on the price of the holding before going ahead with his plan to buy the remaining stake in Chrysler and merge the two carmakers. Fiat owns 58.5 percent of Chrysler and has exercised options to increase its holding by 6.6 percent. The UAW retiree health-care fund, or VEBA, owns the remaining stake.

“The judge might follow the VEBA’s interpretation valuing Chrysler in line with the market and that would be negative for Fiat,” said Gabriele Gambarova, an analyst at Banca Akros in Milan. “The market will anyway appreciate the termination of the legal fight since it generates uncertainty.”

Valuation Formula

Marchionne has said Fiat has enough cash to buy out Auburn Hills, Michigan-based Chrysler. Fiat expects the Delaware court to make its ruling by the end of June and for there to be “clarity” about the combination of the two carmakers by the end of the year, he said April 9.

“I’m kind of leaning” in the direction of the trust, Parsons told lawyers at the hearing in Wilmington, and said he’d take the case under advisement. He told trust lawyers that “the dog that won’t hunt” in the case is the argument that the units should be sold at current fair market value, and said he may have to retain an accountant to examine the complex valuation formula in the 2009 call-option agreement.

Fiat may have to pay as much as $3.5 billion for the entire holding, according to UBS.

Financing Talks

Marchionne, who runs both Fiat and Chrysler, plans to combine the two manufacturers to forge a global automaking group to challenge General Motors Co. and Volkswagen AG. Fiat may select New York as the primary exchange for its stock after the planned combination with its America unit, four people familiar with the matter said earlier this week.

Chrysler has become the group’s cash machine as Fiat struggles to end losses in Europe, which totaled more than 700 million euros last year. Fiat generated 75 percent of 2012 operating profit in North America.

Financing talks with banks on Chrysler are under way and Fiat may get additional loans from banks to buy the holding, two of the people said. The Italian carmaker is approaching banks to refinance a 1.95 billion euro credit line before the deal, people familiar with the matter said last month.