The Detroit News - Fiat SpA is expected today to announce plans to acquire an additional 16 percent stake in Chrysler Group LLC for $1.27 billion, cementing its commitment to the Auburn Hills automaker and its future.
Fiat planned to issue a statement in Italy to disclose the investment, its first infusion of cash into Chrysler, according to two sources who were briefed on the matter.
With the announcement, Fiat will lay out in the clearest terms yet its intent to take control ofa company that has struggled under multiple owners, plunging car and truck sales and years of uncertainty that culminated in a government bailout and bankruptcy in 2009.
The purchase will increase the Italian automaker's Chrysler stake to 46 percent. Fiat also is expected to outline plans to sell Chrysler's outstanding government debt to investors at a lower interest rate; last year, Chrysler paid $1.2 billion in interest on its bailout loans.
The financial transactions, which will allow Chrysler to repay the U.S. and Canadian governments, could be completed as soon as late May. Repaying the bailout money would be a boost to the Obama administration because many critics doubted Chrysler would ever make good on its government loans.
The final piece Fiat needs to take majority control of Chrysler will come late this year. That's when federal officials are expected to certify that Chrysler will build in the United States a vehicle capable of achieving 40 mpg — one of the conditions of its government bailout. At that point, Fiat will get a final 5 percent of Chrysler, raising its ownership stake to 51 percent.
Majority ownership of Chrysler will move Fiat closer to its goal of assembling a global sales and product network. The U.S. government gave Fiat an initial 20 percent stake in 2009, in exchange for establishing a partnership with Chrysler. Without Fiat, Chrysler likely would not have survived bankruptcy.
Chrysler spokesman Gualberto Ranieri, attending the New York International Auto Show, declined to comment Wednesday.
"We do not comment on our future business plans and our financial plans," Ranieri said. "In any case, if this announcement is going to be made, it is primarily a Fiat announcement, not a Chrysler announcement."
Sergio Marchionne, who is chief executive of Fiat and Chrysler, said Wednesday the two companies already are operating as one.
"I don't distinguish between Chrysler and Fiat," Marchionne said as Fiat released first-quarter financial results. "If we ever get to 51 percent, I think Fiat will be more than delighted."
Preparing for IPO
The $1.27 billion Fiat is paying to buy another 16 percent of Chrysler will go directly to Chrysler, which will apply some or all of it to its outstanding government debt. The purchase price is based on a complicated formula outlined in the Fiat-Chrysler partnership agreement.
The transaction will dilute the existing stakes of the U.S. and Canadian governments and the United Auto Workers health care trust fund. The UAW fund now holds a 59.2 percent equity stake, and the U.S. and Canadian governments have a combined 10.8 percent.
The refinancing of Chrysler's government debt also is part of the automaker's preparation for an initial public stock offering, expected late this year or early in 2012.
Chrysler and its bankers are still in discussions about whether to sell bonds to raise cash or to offer debt for sale to hedge funds, private equity firms and other investors; each approach appeals to different investors.
Chrysler expects to file a prospectus, and send senior executives out to meet with potential investors, over the next two or three weeks. The debt refinancing and Fiat's $1.27 billion investment in Chrysler would occur simultaneously.
Chrysler remains in advanced talks with Standard & Poor's and Moody's ratings agencies to obtain a credit rating, which it must have before it can mount a road show to woo smaller investors. The automaker already has lined up large banks: Goldman Sachs, Morgan Stanley, Citigroup Inc. and Bank of America Corp.
"I think the ratings agencies now better understand the work Chrysler has done" in getting its house in order, and planning for a viable future in the automotive industry, Marchionne said Wednesday.
Chrysler, which posted an operating profit last year but lost money overall — Marchionne blamed the red ink on high interest expenses — will release its first-quarter earnings May 2.
Chrysler also plans to seek a revolving line of credit of at least $2 billion, and will give up about $2.5 billion in untapped loan funds from the U.S. and Canadian governments.
Securing the financial pieces and convincing investors of Chrysler's value are critical in preparing for an IPO.
"Given the fact it has been less than two years since Chrysler was out of bankruptcy," Marchionne said, "I think we have made significant progress. I don't regret any of it."
Thinking globally
Marchionne's goal is to assemble and sell Chrysler and Fiat vehicles all over the world. This year, with its tiny 500, Fiat returned to North America for the first time since 1983.
The Alfa Romeo brand is on track to return to the United States in late 2012 or early 2013 with the Giulia midsize sedan, Marchionne said Wednesday.
Orders will be taken in the United States for the Alfa Romeo 4C sports car in late 2012 for delivery of the two-seater in early 2013, he said.
The Alfa Romeo brand pulled out of the U.S. market in 1995, and its return has been announced and postponed numerous times.
The Lancia brand for Europe has grown with the Thema, a version of the Chrysler 300, now on sale and preparations to add the Lancia Flavia based on the 200. A Flavia convertible will be available in the United States this year, Marchionne told investors.
The Dodge Journey is being introduced this quarter for sale in Europe as the Fiat Freemont, and there are now 430 Fiat dealers in Europe selling the Jeep brand, Marchionne said.
By 2014, more than half of Chrysler's volume will be from vehicles derived from Fiat.
