Fiat shares surge following Chrysler buyout disclosure

Article by Anita Panait, on January 5, 2014

Fiat’s shares rose to a near two-and-a-half-year high in Europe following the announcement that it has forged a deal to buy the rest of Chrysler Group for $4.35 billion. Fiat shares jumped 16.4 percent in Milan trading to levels last recorded in August 2011. The increase in share value reflects investors’ positive reaction on the agreement, which has Fiat acquiring the 41.46-percent Chrysler stake owned by a UAW health care trust fund, without having to raise funds from the stock market.

The deal would allow Fiat-Chrysler chief executive Sergio Marchionne to merge the two carmakers to form a global company large enough to challenge the biggest auto manufacturers in the world.

Analysts, however, were worried that the agreement will hike Fiat's heavy debt burden, despite Marchionne being able to haggle for a relatively low price. "They paid less than the market had expected, and there will be no capital increase to fund this, so no wonder the stock is flying," a Milan-based trader told Reuters.

He remarked that while it remains to be seen how the deal will bode for Fiat's future, it is a good start to the year for “a company that has had quite a tough ride recently, especially in Europe."

Citigroup analysts remarked that deal would have Fiat's debt become the highest for any European carmaker. "Group net debt will rise to around EUR10 billion ($13.8 billion)," they said in a note. "We continue to have concerns about the sustainability of this heavy debt burden."

Topics: fiat, chrysler

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