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Fiat keen to buy Canada’s Chrysler stake

May. 27, 2011



Fiat SpA would be interested in buying the Canadian’s government stake in Chrysler Group LLC for a “reasonable price,” but cannot exercise the option at the moment, the chief executive officer of both companies said on Friday.

“Under the current rules we do not have the right to exercise the call option on the Canadian bit,” Sergio Marchionne told Reuters on the sidelines of the general meeting in Zurich of Osec, a company that promotes Swiss trade.


Asked whether he intended to buy Canada’s 1.7 per cent stake in Chrysler, Mr. Marchionne said he hadn’t discussed it with the Canadian authorities, but would be interested at a “reasonable price.”

Fiat notified the U.S. Treasury on Friday of its intent to exercise an option to buy the Treasury’s stake in Chrysler, paving the way for the Italian auto maker to clinch a majority share in the company by early next month.

“We’re doing everything possible to accelerate the pace and bring about in the shortest possible time the creation of a single group,” Mr. Marchionne told the meeting in a speech on “The Future of the Automotive Industry.”

The purchase price of the U.S. stake will be based on the equity value of Chrysler agreed by Treasury and Fiat within 10 business days.

If Fiat and Treasury cannot settle on the price, the amount will be determined by two of three investment banks appointed by the company and the U.S. government.

The option would allow Fiat to increase its stake in Chrysler by 6 per cent, Fiat said in a release on Friday.

Treasury confirmed that it received notice from Fiat, but declined to discuss the announcement further.

This week, Fiat boosted its stake in Chrysler to 46 per cent after repaying $7.6-billion (U.S.) in loans from the United States and Canada through a refinancing deal.

A deal with Treasury would bring its stake to 52 per cent.

Fiat’s announcement comes ahead of President Barack Obama’s planned visit to a Chrysler plant in Toledo, Ohio, next week.

This week, Ron Bloom, the Obama administration’s point man for auto restructuring, said Chrysler’s payoff qualified it for “comeback of the year” and was also a feather in Obama’s cap as he gears up for the 2012 presidential race.

Chrysler, which declined to comment on the news from Fiat, emerged from a bankruptcy restructuring under the management of Fiat in June, 2009.

At that time, Fiat was given a 20 per cent stake in the U.S. auto maker and given a series of tests that Chrysler had to meet before Fiat could lift its stake.

Chrysler is expected to meet the last test in the fourth quarter by developing a car that gets 40 miles on a gallon of gasoline. Meeting this test would give Fiat another 5 per cent in Chrysler.

Mr. Marchionne has said his overarching goal this year was for Fiat to obtain a majority share in Chrysler.

After meeting the last test later this year, Fiat’s stake in Chrysler will be 57 per cent, Fiat said Friday. Completion of the transaction will be subject to obtaining the requisite regulatory approval.

Analysts have said stronger ties between Chrysler and Fiat would be attractive in an initial public offering for Chrysler, which could come this year or next. The deal also allows Chrysler to cut ties with the U.S. government, another plus.

After Chrysler repaid its loans, Treasury’s stake in the company fell to 6.6 per cent.

Fiat said the 6 per cent figure takes into account the expected dilution of shares held by the Treasury and other parties after Chrysler meets the final test.

Meanwhile, asked in Zurich Friday about the growing Chinese interest in European automotive assets, Mr. Marchionne said it was a trend car makers needed to watch.

“If you look at the assets that are being bought, these are peripheral assets ... these are not big car makers, these are brands.”

Earlier this month, China’s largest listed car distributor, Pangda, entered a €110-million ($157-million U.S.) initial deal to rescue Saab, one of Sweden’s best-known auto brands.

Geely has snared Volvo, and Nanjing Auto bought the U.K.’s Rover.

Mr. Marchionne said the problems of overcapacity and inefficiency were still unresolved in the European markets and that auto makers needed to improve efficiency if they were to deal with the size of the Chinese market.

“[China] is going to have a capacity to export that’s going to become lethal and if we don’t get our act together we’ll never be able to compete.”


Rick

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