Fiat May Raise Stake in Chrysler to 51-Percent Before IPO

In June 2009, Fiat took a 20-percent stake in Chrysler as the Italian automaker took control of Chrysler after its bankruptcy proceedings. While it was known Fiat had plans to increase its stake in Chrysler as its balance sheet strengthened, new reports suggest that Fiat may take a majority 51-percent share of Chrysler as early as this year before an initial public offering.

This year, Fiat expects it will get another 15-percent stake in Chrysler once the company begins manufacturing a small engine in the U.S. and meets sales objectives outside of North America, helping to prove Chrysler’s new viability to the U.S. government. Once this occurs and Chrysler repays the U.S. and Canadian government loans, Fiat will have an option to buy another 16-percent of Chrysler, giving it a total 51-percent majority.

“I think it is possible, don’t know whether it is likely, but it is possible that we go over the 50 percent [stake] if Chrysler decides to go to the market in 2011,” Sergio Marchionne, CEO of Fiat and Chrysler Group, told Bloomberg. “There will be an advantage if that happens.”

According to UBS analyst Philippe Houchois, that advantage is a significant cost savings. Houchois estimates that Fiat could save anywhere from $1 to $2.7 billion by taking a 51-percent stake in Chrysler before the company goes public.

Despite the admission that Fiat may take a majority share of Chrysler, Marchionne said that he has no plans to fully merge Chrysler and Fiat. Marchionne also reiterated that Chrysler’s IPO could take place as soon as the second half of 2011.

Source: Bloomberg BusinessWeek

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