Fiat delivered a surprise in a new SEC filing, revealing plans to boost its stake in Chrysler to as much as 70% once the U.S. maker’s government loans are paid off – something that is expected to happen next month.
There is yet the possibility that Fiat could push its stake even higher by acquiring a large chunk of the Chrysler shares currently owned by a union health care trust. And a leading industry analyst questions whether that might mean that Chrysler will skip long-discussed plans to return to public trading with an IPO later this year or in 2012.
The Italian automaker is lining up alternative financing to replace the $7.5 billion it owes the U.S. and Canadian governments. And, over the weekend, Sergio Marchionne, CEO for both makers, said he expects to complete the transition before the second anniversary of Chrysler’s emergence from Chapter 11 bankruptcy protection, June 10th.
That move would allow Fiat to buy an additional 16% stake in Chrysler for about $1.3 billion – bringing its holdings to 46%. Meanwhile, the U.S. maker is expected to meet the third of three hurdles set in its federal bailout by the end of the year, a development that would add yet another 5% to Fiat’s holdings. That would permit the Italian maker to appoint a majority to the Chrysler board, among other things.
But in a document filed with the Securities and Exchange Commission Monday, Fiat said its goal is to increase its stake to nearly 70%, by acquiring the U.S. government’s 8.6% stake in the automaker.
That would occur sometime within 12 months after the payoff of the government loans — $5.8 billion owed to the U.S. Treasury and another $1.7 billion owed to Canada — the maker indicated.
Fiat’s increasingly aggressive plans for taking over Chrysler reflect the maker’s increasing optimism about the U.S. maker’s health. Despite intense skepticism, Chrysler has been regaining sales and share and, earlier this month, announced its first profit since the bankruptcy, a $116 million net for the first quarter of 2011. (Click Here for more.)
There is a strong likelihood that Fiat’s appetite for control of Chrysler may not stop at 70%, suggests Deutsche Bank analyst Jochen Gehrke. He notes that Fiat has an option to acquire up to 40% of the stake now owned by the so-called VEBA, the health care trust operated by the United Auto Workers union. That option can be exercised in 5% chunks every six months starting in July 2012.
Gehrke notes that after the bailout loans are paid off, Fiat would face “no contractual or other limitations” on how much of Chrysler it could acquire. So, the Italian maker may very well seek to boost its stake even higher which, the analyst believes, “makes an IPO of Chrysler a less likely scenario.”
That could explain the recent hesitation by CEO Marchionne to outline plans for a public stock offering. Last November, he said he expected an IPO to take place during the second half of 2011. Lately, however, Marchionne has hinted it would be more likely in 2012. But, if Gehrke is right, Chrysler may simply meld into Fiat with no need to stage an IPO at all.