Fiat to buy shares in Chrysler

[Steve]

It looks like Fiat are set buy a 35% share in Chrysler with the option of increasing it to 55%.

http://www.theaustralian.news.com.au...-36375,00.html

Fiat in driver's seat as Chrysler tie-up looms

Stacy Meichtry and John Stoll | January 21, 2009
Article from: The Wall Street Journal

IN an attempt to revive two of the world's fabled auto makers, Italy's Fiat and Chrysler are poised to announce a partnership in which Fiat could take control of the US company's operations.

Under terms of a pact that is being hammered out, Fiat is likely to take a 35 per cent stake in Chrysler by the middle of this year.

Fiat would have the option of increasing that to as much as 55 per cent, people familiar with the situation said.

Fiat would not immediately put cash into Chrysler, but would obtain its stake mainly in exchange for covering the cost of retooling a Chrysler plant to produce one or more Fiat models to be sold in the US, these people said.

Fiat would also provide engine and transmission technology to help Chrysler introduce new, fuel-efficient small cars, they said.

The companies believed working together could generate savings of $US3 billion ($4.5billion), they said. The deal is the latest manoeuvre by Fiat's chief, Sergio Marchionne, who took over the Italian company in 2004 when it was near collapse.

The partnership would provide each company with added economies of scale and geographical reach at a time when both are struggling to compete with larger and more global rivals such as Toyota, Volkswagen and the alliance of Renault and Nissan.

Chrysler last year sold 2 million cars and trucks worldwide, with almost all of its sales in North America.

Fiat sold 2.5 million vehicles and is heavily dependent on Europe -- particularly its home market in Italy.

While Fiat has a wider global reach than Chrysler, the two automakers are smaller players compared to their global rivals.

Toyota and General Motors, for instance, each have sold more than 9 million vehicles annually.

Chrysler spokeswoman Lori McTavish said: "In today's economic environment, talks are going on between companies in all industries -- ours is no different."

The pact with Fiat could give Chrysler a stronger case as it seeks more loans from the US Government.

Chrysler nearly ran out of money late last year, before the US Treasury Department provided $US4 billion in emergency loans, and has suffered a steep drop in sales in the past three months.

The auto maker needs to show it can remain a viable business by March to keep those loans and to qualify for the $US3 billion in additional government aid it says it needs.

Last week, a vocal critic of Chrysler, senator Bob Corker, said the company needed to "merge or go away".

Kimberly Rodriquez, an automotive consultant at Detroit-based advisory firm Grant Thornton, said Chrysler had little choice but to find an alliance.

"Without further funding, they don't survive with the level of sales and cash they have right now," she said.

Working with Fiat could complicate a separate partnership Chrysler arranged last year with Nissan. Chrysler is supposed to start making pick-up trucks in a few years that Nissan would sell in the US, and Nissan has agreed to make compact cars for Chrysler -- vehicles that potentially could compete with any small cars Fiat provides to Chrysler.

Nissan's partner, Renault, is also a key Fiat rival in Europe.

Chrysler and Nissan had discussed joining in a broader alliance, and top executives of the two companies spoke as recently as last week, a source said.

But Carlos Ghosn, chief executive of both Nissan and Renault, was wary of any deal that would require Nissan to put money into Chrysler, another person familiar with Mr Ghosn's thinking said.

The tentative terms Fiat and Chrysler have worked out would call for Chrysler's owners, Cerberus Capital Management and Daimler, to retain stakes in the US carmaker. If Fiat takes the entire 55 per cent stake, Cerberus will see its 80.1 per cent stake diluted.

It is unclear whether Daimler will want to keep its entire 19.9 per cent stake.

The potential alliance will need the blessing of Fiat's founding family, the Agnellis. The family, which holds a 30 per cent controlling stake in Fiat, has said that to stay competitive, Fiat needs to link up with a larger rival.

Fiat's board is likely to discuss the potential deal with Chrysler when it meets on Friday to approve third-quarter results.