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Fiat boosted by Chrysler buyout optimism
MILAN (Reuters) - Fiat (FIA.MI) shares rose 5 percent on Wednesday, bolstered by optimism about the Italian automaker's ability to buy out the remaining 38.2 percent in its U.S. unit Chrysler, which would give it a bigger benefit from a booming U.S. market.
Remarks by Fiat Chief Executive Sergio Marchionne late on Tuesday indicated that he was ready to pay cash for the remaining stake in Chrysler "at any time".
He also indicated he could do it in 2015, in advance of a 2016 deadline for Fiat to incrementally buy up 16.6 percent of Chrysler at a price tied to a market multiple.
Completing its purchase of Chrysler would help Fiat's share price, since it would give money-losing Fiat access to the "valuable cashflows of its American partner," wrote Bernstein Research in a stock upgrade in May.
Marchionne has said in the past that Fiat could pay cash for the remaining stake in Chrysler. He also said on Tuesday that he didn't think the conditions were right to do it now.
All the same, his remarks bolstered market sentiment.
"I think he rarely intensifies his communication without being ready to make a move," said UBS automotive analyst Philippe Houschois.
Fiat moved to increase its hold on Chrysler on Tuesday, announcing, as expected, it bought around 3.3 percent from Chrysler's other shareholder, the union healthcare trust VEBA, or the Voluntary Employees Beneficiary Association, boosting its stake to 61.8 percent.
Fiat holds options to purchase up to 40 percent of the portion of Chrysler owned by VEBA. Fiat can purchase up to 3.32 percent at a time in any six-month period until June 30, 2016. The total amount of equity it can purchase is 16.6 percent, in five tranches of 3.3 percent. If it exercises the option every six months, it will buy up the 16.6 percent at the end of 2014.
Since the market multiple is based on Chrysler's past performance, the purchases become more expensive as Chrysler's performance improves, Marchionne said on Tuesday.
Asked about the timing of buying up the rest of Chrysler to gain total ownership, Marchionne said he "sees no reason" not to continue gradually buying up the stake up to 2016, as stipulated with VEBA, and that waiting until 2016 may be "a bit too long."
Fiat also has an option to buy up VEBA's remaining 38.2 percent stake in one go.
Strong June car sales in the United States and in Brazil also boosted Fiat's share price, said another analyst.
At 10.25 a.m EDT, Fiat shares were up 4.9 percent at 4.332 euros.
(Reporting by Jennifer Clark)
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