Things have gone pretty well with the Fiat-Chrysler merger so far. So this bit of news shouldn’t come as a huge shock to most. Fiat plans to increase its stake in Chrysler to 30 percent within the next few weeks. This move is part of the plan laid out by Fiat CEO, Sergio Marchionne, to increase Fiat’s overall stake in Chrysler to 51 percent by the end of 2011.
Currently in possession of 25 percent of Chrysler, Fiat intends to buy another five percent from the U.S. government once certain criteria have been met. Fiat has already met one of those criteria, which required that Chrysler raise $1.5 billion outside of the United States. To get an additional five percent of the government’s holdings, the company must build a Fiat-based car that gets at least 40 mpg for the U.S. market. Once that criterion is satisfied, Fiat’s next move might be to exercise its call option on the remaining 16 percent of the company, paying roughly $1.14 billion in cash.
Part of the reason Marchionne wants to increase Fiat’s stake in the company is because he can then bypass any negotiations with dealers that hold contracts with Chrysler. This might sound a bit sinister, but it makes good business sense. Another reason is to avoid overpaying to introduce the Chrysler brand in Brazil—a region where Fiat holds the largest market share at 22.3 percent of the car and light truck market. A dealership agreement is already underway in Brazil, where Fiat currently has 550 Fiat dealerships established.
All of this is leading up to the eventual initial public offering of Chrysler, which Marchionne said last week would happen when the automaker is “ready to be a public company again.” The best estimate for the IPO is sometime next year. That will give Marchionne and the rest of Chrysler’s new management the time they need to meet the company’s goal of increasing global sales by 32 percent and posting its first net income since the automaker rose from the ashes of bankruptcy in 2009. |