Italy’s Fiat SpA (FIATY) announced that it can raise its ownership stake in Chrysler Group LLC up to more than 70% after repayment of government loans and exercising options. The Italian automaker currently has 30% stake in Chrysler.
Chrysler owes about $7.5 billion in loans to the U.S. and Canada governments. It intends to repay the loans by June this year.
As part of Chrysler’s bailout deal in 2009, the U.S. Treasury bestowed management control of the company to Fiat as well as a 20% ownership. After repayment of loans, Fiat’s ownership in Chrysler will climb up to 46%.
The U.S. Treasury currently holds 8.6% of Chrysler, while Voluntary Employee Beneficiary Association (VEBA) – the healthcare trust affiliated with the United Auto Workers (UAW) union – has a 59.2% stake.
Under the 2009 bailout deal, Fiat can increase its stake in Chrysler to 51% and beyond. The company can acquire the U.S. government’s stake as well as exercise an option to buy up to 40% of the interest held by VEBA starting in July 2012 and through the end of 2016. The company can acquire up to 8%t of the VEBA stake once every six months.
Soon after acquiring the majority ownership, Fiat expects to appoint the majority of Chrysler’s board of directors and can direct the timing of events, including a possible initial public offering (IPO).
In the first quarter of 2011, Chrysler posted a profit of $116 million for the first time since 2006. It compared with a net loss of $197 million in the year-ago quarter. Operating profit, excluding taxes, interest and pension-related costs, more than tripled to $477 million from $143 million a year earlier. The higher profit was attributable to higher sales and better pricing and mix.
Chrysler anticipates to earn between $200 million and $500 million in 2011, which would help the company hold an IPO later this year or early next year. It also expects to save $100 million in the second half of 2011 due to its debt refinancing and incur charges of about $500 million associated with paying off the loans early.
Chrysler is the third Detroit automaker after General Motors Co. (GM) and Ford Motor Co. (F) to report a profit after the global economic crisis. General Motors has already reported four profitable quarters while Ford recorded its eighth consecutive quarterly profit last week.
Ford posted a profit of $2.61 billion or 62 cents per share during the first quarter that was the best since the same quarter in 1998. Its profit rose from $1.76 billion or 46 cents per share in the first quarter of 2010. General Motors will release its first quarter results this week.
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