Fiat seen having advantage in talks if Chrysler is valued at $10 billion

Article by Anita Panait, on November 25, 2013

Fiat could have the edge in negotiations to acquire the stake it currently does not own in Chrysler Group if the final value for the US carmaker sits around the level currently being discussed. People privy with the matter told Bloomberg that bank advisers are considering a valuation of about $10 billion for Chrysler, putting the value of the 41.5 percent stake owned by VEBA at $4.15 billion.

That is less than what analysts are expecting the Italian carmaker to pay. VEBA and Fiat are currently in a row over Chrysler’s value as Sergio Marchionne, chief executive of both carmakers, seeks to purchase the UAW's stake. VEBA is currently assessing whether it should sell its stake to Fiat directly or push through with an initial public offering as early as December, the people revealed.

Sascha Gommel, a Frankfurt-based analyst at Commerzbank, remarked to Bloomberg that the process of determining the value of Chrysler is “going in Marchionne's direction," adding that it is in the interest of both parties to avoid an IPO. Gommel noted that the most likely scenario in the end is that Fiat takes the remaining stake. One of the sources told Bloomberg that investment banks working on the IPO have considered between $9 billion and $16 billion.

Another person said that advisers are currently focusing on a range of between $10 billion and $11 billion. The numbers could change depending on the flow of the talks.

Data compiled by Bloomberg show that with a $10 billion to $11 billion range, Chrysler would be priced at six times trailing 12-month earnings, compared to 8.6 times for General Motors Co. and 12 times at Ford Motor Co.

Marchionne was offering to acquire VEBA’s stake at price that is at least $1 billion less than what the trust is asking for. He even said that the UAW "should buy a ticket for the lottery" if it wants $5 billion or more.

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