By Jennifer Clark and Paul Ingrassia
MILAN/NEW YORK Dec 14 Italian carmaker Fiat SpA
rebutted a report that it was set to raise money from
banks to finance its purchase of more of Chrysler, saying it had
no need for such funds.
Instead, Sergio Marchionne, chief executive of Fiat and
Chrysler, said on Friday that Fiat could raise cash by selling
assets such as its components unit Magneti Marelli.
At a brief, impromptu news briefing in New York, Marchionne
said Fiat has no need to tap the debt or equity markets to raise
cash for the planned purchase of remaining Chrysler shares. Fiat
owns 58.5 percent of the No. 3 U.S. automaker.
While Fiat has ample cash on hand, he added, it could raise
additional money if needed by selling assets, citing Magneti
Marelli, which had revenue of 5.8 billion euros ($7.6
billion)last year, as an operation that could be sold.
In the current weak economic environment, Marchionne said,
"the availability of cash is crucial. It's better to be safe
In Italy, Fiat commented on an unsourced report in Il
Messaggero that said Fiat was sounding out UniCredit,
Morgan Stanley, Bank of America and Goldman Sachs
about the possibility of raising between 1 and 2 billion
"Fiat states there is no specific project in such respect,
and believes that there is no need for a capital increase," the
company said in a statement on Friday.
Marchionne reiterated, in an interview with Reuters on the
sidelines of a conference in New York, that he and Fiat remain
determined to gain full control of Chrysler by buying the
remaining 41.5 percent stake from a health care trust affiliated
with the United Auto Workers union.
Marchionne also said wrangling over the price for that share
of Chrysler will continue for some time. Industry experts do not
expect a solution to the price issue by year's end.
The trust, which funds health care for retired Chrysler
workers, is a voluntary employees beneficiary association
Raising funds by whichever means would also allow the
Italian company to restructure debt, boost earnings and support
its struggling European operations until the economy recovers.
Chrysler is worth between $9 billion and $13.4 billion, UBS
estimated in November, meaning the 41.5 percent stake would be
worth between $4.1 billion and $5.5 billion.
VEBA took the stake in Chrysler during the carmaker's
U.S.-government-led restructuring in 2009 and is seeking to
maximize the holding's value.
Fiat said on Oct. 31 it had 9.8 billion euros in liquidity -
or cash and near equivalents - and Chrysler had 10.2 billion
euros. But it needs a liquidity cushion to maintain its credit
rating. Moody's cut Fiat's credit rating to Ba3 with a negative
outlook in October.
The capital increase, if it goes ahead, could take place in
mid-2013, the paper said. One person familiar with the situation
said: "Nothing has been decided yet, but it could come very
soon," adding that no mandate had been given so far.
Yet Fiat's need for cash still depends on the outcome of a
Delaware court battle with VEBA, which pitches the two sides
against each other in a dispute over the price Fiat must pay for
part of the health care trust's holding.
The price for the 16.4 percent stake was determined by a
formula called the VEBA call option, worked out in 2009 when
Chrysler was exiting bankruptcy.
The Delaware court will decide whether Fiat must pay up to
$1.70 billion as demanded by VEBA. Fiat says the stake is worth
less than half that price.
Fiat earlier this week asked the court to make a ruling on a
series of legal briefs instead of holding a trial, according to
a court document seen by Reuters. VEBA must reply to Fiat's
arguments by Jan. 25 and Fiat will file its reply on Feb. 28.
A judge is therefore unlikely to rule on whether the case
will go to trial until he has heard all the arguments from both
sides, which will be in March at the earliest.
Fiat would be unlikely to move forward with raising cash to
buy the 41.5 percent stake before receiving a ruling on how much
it must pay for the 16.4 percent it has a right to purchase from
As the pricing of the Chrysler option has not been confirmed
"it will likely take until late 2013 before the courts reach a
decision on the VEBA trust action", Credit Suisse said in a note
to clients. "The bottom line is that no acquisition will be
possible until then."
Fiat has a right to buy the 16.4 percent stake in tranches
of as much as 3.3 percent every six months through 2016.
"If the court eventually rules in Fiat's favour, Fiat will
buy the further 16.4 percent cheaply and probably wouldn't need
to raise cash," said another person familiar with the matter.
"If the court rules against Fiat, it might decide to make an
offer for the entire 41.5 percent and will need to raise cash."
Fiat and VEBA could also decide to settle out of court at
any time and reach an agreement on the price of the 41.5 percent
Magneti Marelli employs about 35,000 people worldwide. The
unit designs and produces automotive components including
lighting, electronics, suspension and exhaust.