Marchionne says Fiat will buy Chrysler shares, but expects more wrangling
Fiat also could sell assets such as Magneti Marelli, CEO says
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NEW YORK (Reuters) -- Fiat S.p.A. fully intends to acquire the 41.5 percent of Chrysler Group shares that it does not now own, but wrangling over the price could continue for a while, Fiat-Chrysler CEO Sergio Marchionne said today.
Fiat is in arbitration proceedings with the owner of the shares, a UAW retiree trust fund (known as the VEBA) that pays medical benefits to retired workers. The trust fund acquired the shares during the U.S. government-sponsored bankruptcy and bailout of Chrysler in 2009, when Fiat gained an ownership stake and management control of the U.S. automaker.
"We've always taken the position that we would have to pay them, but the question is price," said Marchionne, speaking on the sidelines of a meeting of the Council for the United States and Italy, an international-relations group. The current arbitration proceedings, he added, are "part of the dance."
Fiat also has the option of selling its components unit Magneti Marelli to get additional cash for purchasing more of Chrysler, Marchionne said.
At a brief, impromptu news conference, Marchionne said Fiat has no need to tap the debt or equity markets to raise cash to purchase remaining Chrysler shares.
While Fiat has ample cash on hand, he added, it could raise additional money if needed by selling assets, citing Magneti Marelli, which had revenue of 5.8 billion euros ($7.6 billion) last year, as an operation that could be sold.
In the current weak economic environment, Marchionne said, "the availability of cash is crucial. It's better to be safe than sorry."
Magneti Marelli employs about 35,000 people worldwide. The unit designs and produces automotive components including lighting, electronics, suspension and exhaust.
Fiat vs. VEBA
If, as industry experts predict, the two sides cannot agree on a price by year-end, the trust fund can begin the process that would lead to an initial public offering of its shares, potentially depriving Fiat of its goal of gaining full ownership of Chrysler.
However, the IPO process would take months to meet regulatory and other requirements, and a settlement could be reached during that time.
UBS estimates the fair value of Chrysler at between $9 billion and $13.4 billion, meaning the trust fund's 41.5 percent stake is worth between $4.1 billion and $5.5 billion.
Fiat and the health care trust are battling in a Delaware court over a 3.32 percent piece of Chrysler. Fiat is able to purchase up to 16.4 percent of Chrysler in this piecemeal fashion over the next three-and-a-half years. Chrysler has offered about half of what the health care trust believes the 3.32 percent stake is worth.
When Chrysler exited its 2009 bankruptcy, Fiat took a 20-percent ownership and has increased that since to the current 58.5 percent of the No. 3 U.S. automaker.
The system for Fiat to buy batches of Chrysler for a total of 16.4 percent of the U.S. automaker was also part of that bankruptcy agreement. Fiat says it has used a formula for setting its price for the first batch of those shares, and the trust wants more than double that figure. The full 16.4 percent of Chrysler to be purchased in this manner would total, Fiat says, $754 million, while the trust wants $1.7 billion.
No banking talks
Fiat earlier rebutted a report that it was set to raise money to finance its purchase of a further stake in Chrysler, saying it had no need for extra funds.
Its comment came after an unsourced report out of Italy said Fiat was sounding out UniCredit, Morgan Stanley, Bank of America and Goldman Sachs about the possibility of raising between 1 and 2 billion euros ($1.3-$2.6 billion).
Earlier this week, Fiat asked the Delaware court to make a ruling on a series of legal briefs instead of holding a trial, according to a court document seen by Reuters.
The UAW's VEBA must reply to Fiat's arguments by Jan. 25, and Fiat will file its reply on Feb. 28.
A judge is therefore unlikely to make a ruling on whether the case will go to trial until he has heard all the legal arguments from both sides, which won't be until March at the earliest.
Fiat would be unlikely to move forward with raising cash to buy the remaining 41.5 percent stake before a judge rules on the price it must pay for the 16.4 percent.
"As long as the pricing of the Chrysler option has not been confirmed it will likely take until late 2013 before the courts reach a decision on the VEBA trust action," Credit Suisse said in a note to clients today. "The bottom line is that no acquisition will be possible until then," it said.
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