Fiat resumes talks to buy Chrysler stake from UAW trust, report says

Photo credit: BLOOMBERG

DETROIT (Bloomberg) -- Fiat SpA CEO Sergio Marchionne restarted negotiations with a UAW trust to buy the remaining shares of Chrysler Group, three people familiar with the matter said.

With an initial public offering of Chrysler on hold, Fiat executives met this week with representatives of the retiree health-care trust, said two of the people, who asked not to be identified because the talks are private.

The meeting followed the trust's rejection of a higher offer for its 41.5 percent stake in Chrysler earlier this month, the people said.

The proposal was the first made by Fiat since August, one person said.

"We believe that the parties can find a satisfactory compromise," Gabriele Gambarova, an analyst at Banca Akros in Milan said in a note this week. "The current market price discounts a rather negative scenario."

A long-running dispute over the value of the holding prompted the union trust to force Chrysler to pursue an IPO.

The stock-sale process is meant to set a market value for the third-largest American automaker.

That process has stalled over tax reasons, pushing a potential listing into 2014.

Narrower gap

IPO advisers were considering a valuation of about $10 billion for Chrysler, people familiar with the matter said in November.

Based on those calculations, Fiat is now seeking to pay about $4.2 billion for the holding, compared with the trust's demands for at least $5 billion, one of the people said.

That's narrower than the previous gap between the two sides of more than $1 billion.

Representatives for Fiat and Chrysler declined to comment on the status of talks.

Marchionne, who also runs the U.S. manufacturer, is seeking to merge the two carmakers next year to compete with larger rivals such as General Motors and Volkswagen AG.

Fiat also needs access to Chrysler's cash to help fund a turnaround in Europe, where the Italian carmaker is losing money and market share because of a lack of new models.

Chrysler returned to profit after Fiat rescued it from bankruptcy in 2009.

Fiat holds 58.5 percent of the American carmaker. The trust is holding out for more money with valuations for Chrysler running as high as $19 billion, one of the people said. That would value the holding at $7.9 billion.

Under contracts between the parties, Fiat has the right to buy the stake for about $6 billion, limiting its risk if talks drag on. The trust needs to maximize what it gets for the stake to pay for retirees' medical care.

It estimated in an October filing that those costs will be $3.1 billion more than its assets are worth. Marchionne is eager to avoid over-paying so the carmakers have as much money as possible to invest in new vehicles.

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