Fiat to increase stake in Chrysler to 61.8 percent in coming weeks

Article by Anita Panait, on July 3, 2012

Fiat will exercise an option in the coming weeks to acquire an additional 3.3 percent stake in Chrysler Group, effectively increasing its ownership in the US carmaker to 61.8 percent. In a statement, the Italian automaker said it will buy the additional 3.3 percent stake from the United Auto Workers' retiree health-care trust, VEBA. Fiat is expected to spend less than EUR200 million ($252 million) to acquire the added stake, according to chief executive Sergio Marchionne last month.

Marchionne, who also serves as Chrysler’s chief executive, plans to fully merge the two carmakers to increase total sales to more than EUR100 billion by 2014. He is banking on Chrysler's strong profit to offset Fiat’s continued losses in Europe. In fact, Fiat would have posted a net loss in the first quarter of 2012 if not for Chrysler.

As for the remaining 38.2 stake held by VEBA, Marchionne said that Fiat is not holding negotiations with the union's retiree health-care trust to acquire the shares. Fiat owns the right to acquire the entire stake for $4.25 billion, plus 9 percent annual interest, as calculated from January 2010. To represent its interests, VEBA appointed Erickson Perkins, an adviser to UAW president Bob King, as a new director effective June 10, 2012.

Perkins had been serving as director of the union's strategic research department in King’s office since July 2010. Fiat is looking forward to the merger to stifle its losses in Europe, as it posted first quarter operating losses in the continent to EUR207 million. Marchionne does not expect the situation to improve in the second half of 2012, forcing Fiat to delay the launch of new models in Europe and reduce investments in the region by EUR500 million. [source: Nasdaq]

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