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Fiat to buy government's stake, end U.S. ownership of Chrysler


Fiat notified the U.S. Treasury today that it will exercise an option to buy out the government's remaining 6% stake in Chrysler Group.

When Fiat buys the shares, it will end all U.S. government ownership in the company. That would close out the U.S. involvement less than two years after the 2009 Obama administration-controlled Chrysler bankruptcy and bailout that gave 20% and control to Fiat -- a remarkable turnaround.

The 6% would bring Fiat's ownership of Chrysler to a majority 52%. Under the option, a price for the government stake will negotiated within 10 business days -- or by about June 10. If no deal is reached, Fiat would pay a price determined by investment banks appointed by both parties.

This week, Chrysler also repaid its $7.6 billion in outstanding bailout loans from the U.S. and Canadian governments.

Even the loan repayment, U.S. taxpayers are still out about $2 billion on the $10.5 billion bailout of Chrysler (some of it going to the old Chrysler). The price Fiat will pay for the remaining 6% is unlikely to be that high, and the government already has said that it's unlikely all the money will be recovered.

How Fiat's ownership has grown:

After the initial 20%, the bankruptcy deal called for Fiat to be given three more 5% chunks if it met three goals set by the government and to be able to buy 16% after the loans were repaid. Fiat has got two of the three goal rewards and this week paid $1.3 billion for the 16%, bringing its ownership to 46%.

Buying out the U.S. would take it to 52%, and Fiat has said it expects get the last 5% goal stake (for build a 40 mpg car in the U.S.) by the end of this year to go to 57%. And Fiat has an option to buy part of the stake now held by the United Auto Workers Health Trust that, if exercised, could take its ownership of Chrysler to 70%.


Super Moderator
23,320 Posts
Discussion Starter #2
Fiat to buy remaining U.S. stake in Chrysler

Chrysler and Fiat CEO Sergio Marchionne

CEO Sergio Marchionne is quickly combining Fiat and Chrysler by buying the U.S. government's stake of Chrysler.

Chrysler is on a faster track to shed all U.S. government ownership by June 10 -- exactly two years after it emerged from bankruptcy.

Fiat said Friday that it has asked to buy the U.S. Treasury's remaining 6% stake in Chrysler.

The Canadian government owns 1.7% of the Auburn Hills automaker.

"This is great news for Chrysler. ... It obviously gives us more autonomy to move forward," said Alfred Flores, a Chrysler dealer in Houston and head of the company's national dealer council.

Fiat and the U.S. Treasury will negotiate a price. If they don't reach an agreement by June 10, they agreed to accept the average of two estimates set by investment banks, Fiat said in a statement.

Fiat's announcement came a week before President Barack Obama is to visit a Chrysler plant in Toledo next Friday.

By buying the government's remaining shares, Fiat would boost its Chrysler stake to 52%, up from 46%. Fiat and Chrysler need each other and this deal will strengthen the alliance, said longtime auto analyst Maryann Keller.

"Neither one has the ability to compete alone in the kind of global environment that they face," Keller said.

Earlier this week, Chrysler repaid all of its government debt, when it made payments of $5.9 billion to the U.S. Treasury and $1.7 billion to Canada and Ontario.

Fiat to take majority stake of Chrysler

Fiat's decision to purchase the U.S. government's remaining 6% stake in Chrysler just days after it repaid its government loans underscores how fast Chrysler CEO Sergio Marchionne is combining the two companies, analysts said Friday.

By buying the government's remaining shares, Fiat would increase its stake in Chrysler from 46% to 52%, officially giving the Italian automaker majority control for the first time. The deal is expected to close by June 10.

"One thing that was always obvious to me was that Fiat would take over Chrysler at some point, but that has happened much faster than I would have imagined," said automotive analyst Maryann Keller.

Even though Canada and the province of Ontario would still own 1.7% of Chrysler, the move would end U.S. government ownership of Chrysler. The U.S. Treasury, by contrast, still owns 26.5% of General Motors.

"This gets them out from underneath any hint of government ownership and any of that negativity that went along with the bailout," said Rebecca Lindland, automotive analyst with IHS Automotive.

Strategically, this is a good time for Fiat to strike a deal with the U.S. Chrysler earned a profit of $116 million in the first three months of the year, its first profit since 2006.

The value of Chrysler's shares could increase if the company's profitability improves.

Meanwhile, stock prices for Ford and GM have traded in a stagnant range lately. Ford's shares closed Friday at $14.60, down from $18.97 in mid-January. GM's shares closed Friday at $31.28, down from a high of $39.48 in January.

"As a buyer, I would want to do the deal now," Keller said.

Fiat also said Friday it expects to own 57% of Chrysler by the end of this year. Under the terms of Fiat's 2009 agreement with shareholders, Chrysler must produce a vehicle in the U.S. that gets a combined 40 m.p.g. before Fiat can boost its ownership another 5%.

Fiat initially received a 20% stake in Chrysler when the automaker emerged from bankruptcy on June 10, 2009. Earlier this week, Marchionne said Fiat eventually could increase its ownership to 76% "if we exercise all of our options."

To get to 76%, Fiat would either need to purchase some of the shares held by the UAW's health care trust fund or conduct a public offering of shares. Marchionne said the timing of either of those transactions is up to the VEBA Trust, which owns 45.7% of Chrysler.

"The VEBA obviously has an interest in monetizing," or selling its shares through a stock offering, Marchionne said Monday. "In a very strange way, the more we perform, the better it is for them. So the question of urgency and timing is something that needs to be discussed."

A person familiar with the UAW VEBA's operations said the VEBA has delegated the decision about when to sell its shares to an independent fiduciary. That company will make decisions based on market conditions, the person said.

Moody's Senior Vice President Bruce Clark said May 20 that the alliance between Fiat and Chrysler is working because both companies need each other.

Chrysler needs Fiat's small-car expertise and fuel-efficient technology, Clark said. Fiat lacks a significant position in North America.

"Simply put, the ongoing viability of both Chrysler and Fiat is highly dependent upon the success of the alliance," Clark said in a report.
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