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Jan 5, 2012

Fiat Raises Chrysler Stake in Step Toward Merger

Fiat SpA (F) 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 (F) 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 (F) 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 (SXAE) 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.

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Chrysler Group LLC Completes Final Performance Event; Fiat S.p.A. Ownership Rises to 58.5 Percent; Fuel-Efficient Dodge Dart to Be Revealed at NAIAS on Jan. 9

January 5, 2012 , Auburn Hills, Mich. - Chrysler Group LLC today announced that Fiat S.p.A.'s ownership interest in the Company has increased to 58.5 percent, from 53.5 percent (fully diluted), upon the Company’s achievement of the final of three performance-related milestones.

As provided in its June 10, 2009 Operating Agreement, Chrysler Group issued a letter to the U.S. Department of the Treasury stating that the Company has irrevocably committed to begin assembly of a vehicle with an unadjusted combined fuel economy of at least 40 mpg in commercial quantities in a production facility located in the United States. As a result, Fiat’s ownership interest increased automatically by 5 percent under the terms of the Operating Agreement.

The ownership interests of Chrysler Group’s members are now:
Fiat: 58.5 percent
UAW VEBA: 41.5 percent


In late December, Chrysler Group achieved the Fuel Economy Test, for an unadjusted combined rating of 40 mpg, with a pre-production version of the Dodge Dart, its new, state-of-the-art, four-door sedan.

With the 2013 Dodge Dart, Chrysler Group is redefining performance in the compact car segment and delivering world-class aerodynamics. With Alfa Romeo DNA and Dodge’s passion for performance at its core, the all-new 2013 Dodge Dart is a thoroughly modern and fuel-efficient vehicle that’s beautifully designed and crafted, agile and brings driving fun back to the segment. The all-new Dodge Dart will be made in the United States at Chrysler Group’s Belvidere Assembly Plant in Belvidere, Ill.

The Dodge Dart is scheduled to be unveiled at the North American International Auto Show in Detroit on Jan. 9.

This is the fifth time in the past year that Fiat has increased its ownership in Chrysler Group.

In June 2009, Fiat initially received a 20 percent stake in Chrysler Group in exchange for sharing intellectual property and other resources with the Company.

On Jan. 10, 2011, Fiat announced that its stake in the Company increased to 25 percent when Chrysler Group received the appropriate government approvals and committed to begin commercial production of the Fully Integrated Robotized Engine (FIRE) in its Dundee, Mich., facility.

On April 12, Fiat’s ownership in Chrysler Group increased to 30 percent as Chrysler Group achieved cumulative revenue of more than $1.5 billion attributable to Company sales made outside of Canada, Mexico and the United States and entered into distribution agreements in Brazil and Europe, as well as a technology-use agreement.

In connection with Chrysler Group refinancing and paying back its U.S. and Canadian government loans in full on May 24, six years early, Fiat exercised its call option to increase its ownership interest in Chrysler Group by an incremental 16 percent to 46 percent, on a fully diluted basis.

And on July 21, Fiat reported that it paid $500 million to purchase the U.S. Treasury’s remaining 6 percent (fully diluted) ownership interest in Chrysler Group and $125 million to purchase the Canadian governments' remaining 1.5 percent (fully diluted) ownership interest, bringing its fully diluted ownership interest to 53.5 percent. In addition, Fiat paid $75 million to obtain assignment of the U.S. Treasury’s rights under the Equity Recapture Agreement.

With the submission of the letter to the U.S. Treasury, Fiat’s stake in Chrysler Group is now 58.5 percent.
 
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