MILAN - Italian automaker Fiat is closing in on its goal of taking a majority stake and full control of Chrysler LLC by the end of the year, announcing a deal Thursday to buy another 16 percent share sooner than expected at a price of $1.3 billion.
Fiat SpA will exercise an equity call option, bringing its stake to 46 percent, once Chrysler has repaid $6.6billion in outstanding loans to the U.S. and Canadian governments, which Fiat said would happen in the second quarter of 2011.
Fiat expects to gain another 5 percent, for a majority 51 percent share, by the end of the year - setting the stage for a Chrysler public offering and raising expectations of a full merger.
"This is a fundamental step toward the completion of the momentous integration of Fiat and Chrysler, initiated less than two years ago, that will result in the creation of a global automaker," Fiat and Chrysler CEO Sergio Marchionne said in a statement.
Analysts had expected Fiat to exercise the call option before Chrysler launches an IPO in order to get a better price, but not so soon.
"The timing was a little bit faster than we were expected. The amount was in line with our expectation," Morgan Stanley analyst Stuart Pearson said.
Marchionne said the agreed sum - the first cash Fiat has agreed to put into Chrysler - reflects also Fiat's investment in Chrysler's recovery.
"It would have been improper to require Fiat to pay a premium for something
that it had effectively contributed to in terms of the restructuring and repositioning in the market place," Marchionne told analysts. "This reflects the involvement and work that Fiat has applied to Chrysler."Chrysler is making progress with several banks in an effort to refinance the U.S. and Canadian government loans, which Marchionne has said carry high interest rates that average 11 to 12 percent per year.
But the refinancing agreement is still being negotiated and won't be announced Thursday, said a person briefed on the talks.
The company is working to get all parties on board, including the banks, governments and the United Auto Workers health care trust, which now is Chrysler's largest stakeholder at 59 percent, said the person, who did not want to be identified because the negotiations are private.
Chrysler was initially handed $9.4billion in loans from the U.S. government Canadian governments, which own 8.6 percent and 2.2 percent of the company, respectively.
Fiat has had operational control of Chrysler since taking a 20 percent stake in June 2009 in exchange for small car and more fuel-efficient engine technology, along with management know-how. But further integration is expected as Fiat's stake increases and Chrysler launches a public offering, which could come as early as this year.
Shanna Moakler Megan Ewing Monica Keena Tina Fey Gretha Cavazzoni
