Fiat hits two-year high after €3.2bn deal for full Chrysler control
Investors welcomed the deal struck by chief executive Sergio Marchionne, under which Fiat will buy the 41.46% of the third biggest US carmaker it does not already own, without raising funds from the stock market.
Marchionne, who has run both companies since Chrysler’s 2009 US government-funded bankruptcy restructuring, intends to merge the two into the world’s seventh-largest auto group.
However, analysts are concerned that the deal will increase Fiat’s already heavy debt burden.
Fiat shares rose as much as 16% to levels last seen in Aug 2011 after the deal. It was the stock’s biggest intraday gain since April 2009.
“They paid less than the market had expected, and there will be no capital increase to fund this, so no wonder the stock is flying,” a Milan trader said.
“While it’s still to be seen how this will bode for Fiat’s future, this is a good start to the year for a company that has had quite a tough ride recently, especially in Europe.”
Fiat will buy the stake in the US group from a retirees’ healthcare trust affiliated to the United Auto Workers union, with Chrysler putting up most of the funding.
However, Citigroup analysts said Fiat’s debt would become the highest for any European motor manufacturer. “Group net debt will rise to around €10bn,” they said in a note. “We continue to have concerns about the sustainability of this heavy debt burden.”
It remains to be seen whether the merger will cut Fiat’s losses in Europe, where it had promised to break even by 2016. Fiat’s plan depends on its ability to share technology, cash, and dealer networks with Chrysler easily and cheaply.
The firms currently manage their finances separately. A full merger will make it easier — but not automatic — to combine the cash pools of the pair.
The ratings agency Fitch said Fiat may not immediately be able to fully access Chrysler’s cash, as this would require a refinancing of the US firm’s credit agreement and bonds. Fitch will review its rating early this year.
Chrysler’s booming US sales are now a profit centre for Fiat, helping to offset losses in Europe.
In Italy, several Fiat plants have been working only a few days a month.
Whether Marchionne will put billions into Italy and Europe is uncertain.
“The bad news is that he’s spent no money for the past two years at Fiat because he was waiting for this to happen,” said a London-based analyst.
“He’s not getting any exposure to European recovery. The US asset is not as good as its peers and needs money spent on it. Marchionne has shown he can get the job done, but I’m still buying a dream.”
