Fiat says may need capital hike after Chrysler buyout

TURIN, Italy Tue Apr 9, 2013 3:44pm EDT

Fiat CEO Sergio Marchionne poses after the presentation of the new LaFerrari hybrid car on the Ferrari stand during the first media day of the 83rd Geneva Car Show at the Palexpo Arena in Geneva March 5, 2013. REUTERS/Denis Balibouse

Fiat CEO Sergio Marchionne poses after the presentation of the new LaFerrari hybrid car on the Ferrari stand during the first media day of the 83rd Geneva Car Show at the Palexpo Arena in Geneva March 5, 2013.

Credit: Reuters/Denis Balibouse

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TURIN, Italy (Reuters) - Fiat SpA's FIA.MI loss-making European operations will be further weakened by the region's drawn-out auto slump, Chief Executive Sergio Marchionne warned on Tuesday, adding that the Italian carmaker may need to raise capital after it completes a planned buyout of Chrysler.

European losses could be worse than expected in 2013, but the company still believes it can meet financial targets thanks to improved earnings from more dynamic markets in the Americas and Asia, Marchionne said at the company's annual shareholder meeting.

"For the first time in a long time, I can't see the bottom of the car market," Marchionne said of Europe's collapsing car demand. He spoke at a news conference after the annual shareholder's meeting.

While Fiat does not expect to revise earnings goals with its April 29 publication of first-quarter results, he said, "the geographical distribution (mix) could change given the performance of Europe."

Italian car sales fell 19.8 percent in 2012, when Fiat posted a 738 million-euro ($963.65 million) loss before interest and tax. The European car market is forecast to fall as much as 5 percent this year.

Marchionne also said Fiat may need to raise more capital after it completes the buyout of 58.5 percent-owned Chrysler. "It will be necessary to strengthen our capital in the medium- to long-term," he said.

Marchionne said Fiat had enough cash to avoid a capital increase to buy the Chrysler stake held by VEBA, a healthcare trust linked to the United Auto Workers union. But after the purchase, he said the company might seek extra funds.

Fiat may need to pay between $3.3 billion and $4.2 billion for VEBA's 41.5 percent, based on an estimated valuation of between $8 billion and $10 billion for the unlisted carmaker.

CLEARER IDEA

A 2009 agreement caps the amount VEBA can ask for its 41.5 percent stake at around $5.4 billion. Fiat has 11.5 billion euros in cash.

Marchionne said there was a "50 percent chance" of the Fiat-Chrysler buyout being completed by June 2014 and that he hoped to have a clearer idea about the transaction by the end of 2013.

Fiat's road to full control of Chrysler depends on a Delaware court, Marchionne said. That is because when Fiat acquired part of Chrysler in 2009, the sale included a call option giving Fiat the right to gradually buy up a 16.6 percent stake in Chrysler from VEBA.

But Fiat and VEBA have differing interpretations of how Chrysler's value is calculated under the terms of the 2009 contract.

VEBA says the stake is worth up to $1.7 billion, more than double the $754 million Fiat has calculated. Marchionne said he wanted to wait for the court ruling before moving forward with any further purchases of VEBA's stake.

Chrysler posted earnings before interest and tax of 2.7 billion euros last year, offsetting a loss for Fiat's mass-market brands of 738 million euros in Europe.

Fiat sees sales at between 88 billion euros and 92 billion this year, with more than half from North America, and expects to sell between 4.3 million and 4.5 million cars.

Credit Suisse analyst David Arnold said the carmaker was likely to have to cut its financial goals because they were based on a forecast of a European market fall of just 2 percent.

Arnold said the bank's own prediction of a 5 percent contraction would also likely prove too optimistic.

"Earnings forecasts at Fiat are going down and will continue to do so," Arnold said in a note to investors. Credit Suisse sees Fiat's European losses widening to 750 million euros this year, before interest and tax.

Fiat shares closed up 1.6 percent at 4.038 euros on Tuesday.

($1 = 0.7658 euros)

(Additional reporting by Laurence Frost in Paris; editing by Silvia Aloisi, Mark Potter and Matthew Lewis)

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