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Posted on April 8, 2011
Fiat SpA (F), the Italian automaker that controls Chrysler Group LLC, is preparing to raise its ownership stake in the U.S. company to 30 percent from 25 percent as soon as next week, said two people familiar with the matter.
An announcement may come as soon as April 11 or April 12, said the people, who asked not to be named because the plans aren’t public.
Sergio Marchionne, chief executive officer of both automakers, wants to meet goals set by the U.S. Treasury Department to raise Fiat’s stake in Chrysler to 35 percent and exercise options to buy an additional 16 percent this year before holding an initial public offering. Fiat declined to comment on changes to the Chrysler stake.
Marchionne, who has already cleared one of the U.S. government’s hurdles, has been working on a plan to achieve a second milestone that requires 90 percent of Fiat’s Latin America dealers to carry Chrysler vehicles. The milestone also requires Chrysler to meet a goal of $1.5 billion in revenue outside North America, which has been accomplished, a person familiar with the effort has said.
The automakers are working on a plan to sell Chrysler-made vehicles in Brazil under the market-leading Fiat brand, Mike Manley, who runs Chrysler’s international operations, said yesterday. The plan would allow the carmakers to avoid negotiating new franchise agreements with Fiat dealers in Brazil; Marchionne said in October the effort was difficult because of regulations governing dealers in Brazil.
“I think we’ll see resolution of it in the near future,” Manley said.
Marchionne is pushing Chrysler to increase its global sales 32 percent in 2011 and post its first annual net profit since emerging from bankruptcy reorganization in 2009. He wants to increase Fiat’s ownership of Chrysler to 51 percent in advance of an initial public offering of the U.S. company’s stock, possibly this year. Last month he said the IPO may be delayed until next year.
Fiat, based in Turin, Italy, agreed with the U.S. government after the bankruptcy to share technology and management with Chrysler in exchange for an initial 20 percent stake and performance targets to increase to 35 percent without paying any cash. Fiat can buy the remaining 16 percent needed to reach 51 percent.
Fiat may pay $1.14 billion to exercise its call option on the last 16 percent if Marchionne makes the purchase in 2011 and $1.37 billion if he buys it next year, according to JPMorgan Chase & Co. analyst Ranjit Unnithan, who has an “underweight” rating on the stock. The cost is linked to Chrysler’s earnings.
The Italian carmaker raised its stake to 25 percent in January after Chrysler began production of a Fiat-derived small engine in the U.S.
Fiat expects to increase to a 35 percent holding by the fourth quarter after meeting a requirement for Chrysler to assemble a Fiat-derived car in the U.S. that gets 40 mpg, Marchionne said last week.
Fiat has 700 dealers in Latin America, including 550 in Brazil, while Chrysler has fewer than three dozen outlets in that country. Brazilian law prohibits Fiat from forcing the dealers to become Chrysler franchises, according to Stephan Keese, head of the automotive practice for Roland Berger Strategy Consultants in Sao Paulo.
Brazil is Fiat’s second-largest market by revenue, trailing Italy. The company sold 761,400 passenger and light-commercial vehicles there last year. Chrysler, based in Auburn Hills, Michigan, delivered 3,952 vehicles in the country in 2010, according to J.D. Power & Associates, a market researcher based in Westlake Village, California.
Chrysler’s best-selling vehicle in Brazil is the Mexico- built Dodge Journey sport-utility vehicle, which starts at 82,900 reais ($52,300). The Journey begins at $22,245 in the U.S., according to the brand’s website. The automakers plan to rename the Journey as the Fiat Freemont for Brazil and Europe.
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