Fiat will need more money to take total control of Chrysler

Article by Christian Andrei, on December 12, 2012

Fiat may have to spend more in order to take total control of Chrysler as a court decision on a price dispute continues and as Chrysler's possible share flotation is impending. Fiat presently holds 58.5% of Chrysler. It has a right to acquire 16.4% more for the next three years at a price based on a formula developed in 2009 when Chrysler was emerging from bankruptcy.

However, a dispute with regards to the price is now in a Delaware court, which will rule if Fiat has to pay as much as $1.70 billion as required by the UAW's VEBA, the union's retiree healthcare trust, to get the shares. The ruling isn’t expected to come before the end of 2012. Brian Quinn, a professor at Boston College Law School, said that this would work in VEBA's favor.

Quinn said that if Fiat hopes to get this resolved by the end of this year, it will have to be a settlement. What VEBA hopes to get is double the $754 million Fiat has computed to be the worth of the stake, according to the formula. Presently, Fiat and VEBA are not near to any resolution yet. Fiat hopes to acquire VEBA's stake, and VEBA wants to get Fiat's cash. Fiat is the only buyer.

This will change starting next year on January 1 when VEBA gets the right to sell a portion of its Chrysler stake in an initial public stock offering. VEBA gets significant leverage in any future talks with Fiat and can make what Fiat pays for a lot more expensive. Last October, Fiat-Chrysler CEO Sergio Marchionne said that the legal dispute may be tied up by the end of 2012 but according to law experts, this matter may last for many months.

Topics: fiat, chrysler

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