In the upcoming weeks, Fiat S.p.A. seeks to raise its Chrysler Group stake to 30% as soon as it gets clear of two U.S. government obstacles related to getting the increased holding, according to two sources. Reportedly, CEO Sergio Marchionne is planning to sell Chrysler models under the Fiat brand in Brazil to achieve its first target that 90% of Fiat's Latin American dealers should be able to offer Chrysler vehicles.
One insider said that this plan will enable Marchionne to avoid having to engage in talks with dealers about Chrysler contracts. The company will also be able to elude the cost of presenting the brand in Brazil, whose largest share of the market is owned by Fiat.
Already, Fiat has complied with the second demand to reach $1.5 billion in revenue outside North America at Chrysler (starting with the period when Fiat took a stake in Chrysler). Presently, Fiat owns 25% of Chrysler.
However, it will receive 5% more of the U.S. government's holding in Chrysler as soon as the Treasury Department is convinced that the two conditions were met. With this increase, Marchionne may just be able to attain a 51% stake by the end of this year. Fiat is set to acquire the initial 35% without having to pay cash but it would then have to purchase the remaining 16%.
JPMorgan analyst Ranjit Unnithan, who has given the stock an “underweight" rating, said that Fiat may pay $1.14 billion to implement its call option on the 16% that’s left if Marchionne moves to buy in 2011 and $1.37 billion if the purchase is made in 2012. This cost is dependent on what Chrysler earns.