Fiat is ready to buy another 3.3% stake in Chrysler for $198 million

Article by Christian Andrei, on January 7, 2013

Fiat SpA has notified the minority shareholder in Chrysler Group LLC of plans to buy another 3.3% stake for $198 million. Fiat’s announcement represents a further step to carry out Chief Executive Sergio Marchionne's goal for Fiat to acquire all of Chrysler by purchasing the 41.5% stake currently owned by the retiree healthcare trust fund affiliated with the United Auto Workers union.

Since last year, the two investors have been arguing over Chrysler's value when the UAW trust fund rejected Fiat's efforts to buy a 3.3% stake in Chrysler for $139.7 million. The offer was denied because the price was too low. Fiat, which holds a 58.5% stake in Chrysler, then filed a suit against the UAW trust fund. The dispute is now pending in a Delaware court.

In a statement, Fiat said that within the next several months, the court is expected to hand down a determination. Fiat will then own 65.17% of Chrysler if the sale and the transaction are successful. The UAW trust, which is also recognized as a VEBA, or voluntary employees beneficiary association, got the stake in Chrysler during the restructuring of the U.S. automaker in 2009.

The entity, which handles the medical benefits for 824,000 blue-collar retirees, is working to optimize the holding's value to cover the rising healthcare costs for Chrysler's retirees.

Fiat holds options to acquire as much as 40% of Chrysler owned by the UAW trust that could be exercised until the end of June 2016. Last Thursday, Fiat said that the price will be based on a multiple (which won’t surpass Fiat's multiples) of Chrysler's core earnings in the last four quarters, minus the net industrial debt. So far, VEBA hasn’t commented on Fiat’s announcement yet.

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