Fiat May Increase Chrysler Stake Above 50%, But Won’t Merge Operations
By Chris Haak
Fiat and Chrysler CEO (though not Fiat/Chrysler CEO) Sergio Marchionne told reporters in Milan, on the sidelines of an event to celebrate the split of Fiat into two pieces, that if Chrysler launched its expected IPO around the middle of this year, Fiat could ultimately increase its stake in the smallest US-based automaker up to 51 percent prior to the IPO. Currently, Fiat owns 20 percent of Chrysler Group LLC.
Fiat will receive 15 percent more of Chrysler (to 35 percent total) if the company meets certain operational benchmarks, which include making a small engine in the US (which it’s doing for the Mexico-built Fiat 500), meets sales objectives outside North America, and sells a domestically made car in the US that gets over 40 miles per gallon. If Fiat repays government loans from Canada and the US before 2013, the company has the option to buy another 16 percent of Chrysler, which would bring the total potential ownership stake up to 51 percent.
However, on a related note, Marchionne also noted that he didn’t expect that Chrysler’s operations would be merged into Fiat, implying that the companies will maintain separate management structures. In many ways, this sounds fairly similar to the alliance strategy employed by Nissan and Renault CEO Carlos Ghosn; the two companies cooperate quite a bit, and share a CEO, but remain independent companies. In the Nissan-Renault situation, however, there is cross-shareholding; it’s unclear whether Chrysler would own a stake in Fiat even near the size of Fiat’s stake in Chrysler, if any. The Nissan/Renault alliance (not a Renault Alliance, mind you) also actually counts Daimler AG as a partner, though its operations are less integrated with the other two at this stage.
In other Fiat news, as of January 1, the company completed its split into two distinct firms, with separate stock-exchange listings. Fiat’s industrial group, which produces tractors and trucks, became one firm, and Fiat’s automotive group is another firm. In an early sign that perhaps shareholder value had been unlocked by the split, combining the two companies’ individual share prices yielded a price on today of €16.12(€8.87 for Fiat Industrial and €7.25 for Fiat), higher than the €15.43 price that the combined entitiy traded for on December 30, its last trading day before the New Year’s holiday.
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