Fiat Plans on Increasing Its Stake in Chrysler to 30%News — On April 7, 2011 at 10:32 am
Fiat aims to increase its stake in the Chrysler Group to 30% in the following weeks, after it will clear two of the U.S. government obstacles which are linked with receiving of increased holding. Sergio Marchionne, Chrysler’s CEO, plans to retail Chrysler vehicles under the Fiat name in the Brazilian market, in a bid to reach their first goal of making 90% Fiat dealers in Latin America offer vehicles from Chrysler.
This plan will allow Chryler’s CEO to side step the negotiations of Chrysler contracts with dealers as well as avoid costs of introducing a new brand in Brazil, where currently Fiat has the biggest market share. Fiat recently met Chrysler’s second demand for $1.5bn revenue as Fiat had a stake in Chrysler.
Fiat currently owns a 25 per cent stake in Chrysler. It will also get an increased 5 per cent stake of the government of US holding after the department of treasury is satisfied about the two rules being met. This increase will help CEO, Marchionne who heads both the car manufacturers, to reach his goal of acquiring a stake of 51 per cent by 2011 end.
Fiat will get the first stake of 35% without having to pay any cash, and after this must buy the remaining stake of 16 per cent. Fiat might also have to pay $1.14bn for exercising their call option for the remaining stake of 16 per cent, if the CEO plans to complete the purchase by 2011 end. If he plans to purchase the stake by next year, he will have to shed out $1.37bn according to Ranjit Unnithan, an analyst from JP Morgan. The cost will also be linked to the earnings of the Chrysler Group.
Fiat had purchased 20 per cent stake in the Chrysler Group on June, 2009, when the American auto company had just emerged from a period of bankruptcy. Fiat had also agreed to share management, systems and technology with the company for an exchange of an initial holding of 20 per cent.
The company then raised the stake by 5 per cent by January after Chrysler managed to receive the regulatory approval for an engine which was based on the family of Fiat FIRE, to manufacturer in America. Marchionne had said at the annual meeting of Fiat in Italy that, Chrysler is now close to completing their agreement of dealership, outside North America, beginning with Brazil.
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