Fiat prepping for Chrysler purchase with banking talks, report says
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(Bloomberg) -- Fiat S.p.A. is discussing financing options with banks to strengthen its balance sheet in preparation to buy the Chrysler Group LLC stake it doesn't own, three people familiar with the matter told Bloomberg.
Sergio Marchionne, CEO of both automakers, has held talks with banks to help pay for at least some of the 41.5 percent held by the UAW medical benefits trust for Chrysler retirees, said the people, who asked not to be identified because the talks are private. A final deal may take months because Fiat and the trust disagree over the value of the shares, they said.
Marchionne is evaluating options that include a bridge loan to complete the deal, two of the people said. The Italian carmaker may pay around 2.23 billion euros ($2.98 billion) to buy the remaining stake, according to an estimate from Goldman Sachs Group Inc., which sees a deal possible within 12 months.
Marchionne is relying on Chrysler to sustain earnings as he works to end losses at Fiat's mass-market brands in Europe by 2015 at the earliest. The Italian carmaker, which would have posted a 1.04 billion-euro loss in 2012 without Chrysler, has been looking to buy the remaining stake to get access to the American automaker's cash and push integration of the two.
"We believe the deal remains inevitable," said Max Warburton, an analyst at Bernstein Research. "The move will allow Fiat and Chrysler to pool cash in due course and ensure that Chrysler's cash generation can support Fiat."
Stronger balance sheet
Banks are pitching Fiat on raising capital to strengthen its balance sheet, keep debt under control and sustain cash as it buys the rest of Chrysler, two of the people said. Fiat may need to boost capital by 1.5 billion euros, one of the people said. The Italian carmaker doesn't plan to sell a stake in Ferrari to finance the deal, one person said.
Fiat representatives declined to comment on possible financing talks.
Marchionne said Feb. 3 that a share sale would make sense only for "strategic moves" as the Agnelli family, which controls Fiat through Exor S.p.A., has already invested enough in the company. Fiat denied in December that it was planning to issue new shares to raise money to boost its Chrysler holding. Fiat also ruled out such a move last week.
Cash reserves
Fiat, excluding Chrysler, "has adequate liquidity levels to deal with operating needs, investment plans and any uncertainty in markets" and doesn't need to monetize assets, the automaker said in a slide presentation for an investor meeting Feb. 7 posted on its website.
Fiat is also weighing whether to pay for part of the stake with its own shares, one of the people said.
Fiat, excluding Chrysler, had 9.1 billion euros of cash and 1.95 billion euros of undrawn credit lines at the end of 2012, with net debt from industrial activities of 5.05 billion euros. Chrysler had 8.8 billion euros of cash and 985 million euros of undrawn credit lines, with net debt of 1.5 billion euros at the end of last year, Fiat said Jan. 30.
"Fiat has to sell assets or has to sell shares," Harald Hendrikse, an analyst at Citigroup in London, wrote in a note to investors yesterday.
The Italian carmaker has announced plans to exercise options to raise its Chrysler holding to 65 percent from the current 58.5 percent. Fiat has yet to receive those shares from the trust because the two are disputing the automaker's valuation amid the trust's efforts to sell part of its stake in an initial public offering.
A U.S. court decision on the price may come by the end of the first quarter, Marchionne has said. Fiat plans to continue using options it has to boost the holding by 3.3 percent every six months up to 75.1 percent, the CEO has said.
Completing merger
Marchionne, who targets increasing 2013 profit to as much as 4.5 billion euros from 3.81 billion euros last year, said this month he's confident of completing a merger with Chrysler and solving the issue with the trust by the end of 2014.
Fiat may seek to buy the remaining holding before an IPO because the Italian company has no interest in "diluting" control, Marchionne said last month, adding that an IPO may be ready by the fourth quarter.
An IPO process may help in setting the price for the stake, Warburton said. Fiat will have to pay from 1.36 billion euros to 3.3 billion euros for the holding, he estimated.
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