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Fiat May Consolidate Chrysler Group in Second Quarter of 2011, UBS Says

December 16, 2010
3 min to read


Chrysler Group LLC, the U.S. automaker operated by Fiat SpA, may refinance U.S. government loans by March, allowing the Italian automaker to buy a larger stake in the second quarter, according to analysts at UBS AG.


“Taking control of Chrysler came across as a clear priority during Fiat’s de-merger roadshow meetings,” said Philippe Houchois, the London-based lead analyst on a UBS report to clients today. Fiat has been briefing analysts as part of its effort to spin off its truck and tractor divisions to focus on carmaking, reported Bloomberg.

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Chrysler may borrow money to repay the U.S. Treasury in the first quarter, consolidate with Fiat during the second quarter and hold an initial public offering in the third quarter, Houchois said, calling it “an aggressive but in our view realistic timeframe.”


Sergio Marchionne, the chief executive officer of both Chrysler and Turin, Italy-based Fiat, said last week that he is considering repaying U.S. and Canadian government loans before 2013, which could allow Fiat to exercise an option to increase its ownership by 16 percent.


Fiat obtained a 20 percent stake as part of Chrysler’s bankruptcy reorganization last year. It can get 15 percent more when Chrysler makes a small engine in the U.S., meets sales objectives outside of North America and sells a domestically made car in the U.S. that gets 40 mpg.


Year-End Goal


Fiat will get that stake by the end of next year, Marchionne has said. He has also said he plans to take Chrysler public during the second half of next year. Chrysler hasn’t said it will sell a U.S.-made 40 mpg vehicle before the second half.

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Consolidation would ideally mean holding a 51 percent stake, Houchois said in an e-mail.


“Getting the last 5 percent installment to 35 percent may take until end 2011 so Fiat may only be able to achieve 46 percent” by the end of the second quarter, he said. “Consolidation can be achieved through other means, like effective control of the board.”


Consolidating Auburn Hills, Michigan-based Chrysler before its IPO could save Fiat 1 billion euros ($1.34 billion) to 2.7 billion euros, Houchois said.


Gualberto Ranieri, a Chrysler spokesman, declined to comment on the UBS report.


Repaying the loans early could allow Fiat to exercise the option in advance of 2013, analysts at Barclays Capital wrote a Dec. 2 report. Barclays estimated the savings at about $2 billion for Fiat to exercise its 16 percent option in advance of a Chrysler IPO.

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Fiat shares today rose 7 cents to 14.57 euros in Milan trading.


The face value of Chrysler’s debts to the U.S. and Canadian governments is about $7.46 billion. Some of Chrysler’s government loans mature by the end of next year while the majority mature in 2017, according to the U.S. company’s third- quarter financial statement.

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