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Fiat aims to control Chrysler sooner

By Bloomberg News
April 22, 2011

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MILAN — Fiat SpA will pay $1.27 billion to reach a 51 percent stake in Chrysler Group as chief executive Sergio Marchionne is set to gain control of the US automaker two years earlier than planned.

Fiat aims to increase its stake to 46 percent in the second quarter after completing refinancing needed for Chrysler to repay government loans, the Italian carmaker said yesterday. The rest will come later this year.

The Obama administration tapped Marchionne, who now runs both automakers, to revive Chrysler after it emerged from bankruptcy in 2009. In exchange for sharing technology and management and for reaching operating milestones, the US and Canadian governments are giving Fiat 35 percent of Chrysler without paying any cash. The original deal was for Fiat to buy the final 16 percent stake in 2013.

“It’s a promising sign for Chrysler,’’ said Jessica Caldwell, an analyst with Edmunds.com. “There was a time in which you literally didn’t know what the fate of Chrysler was.’’

Chrysler owes the US and Canadian governments about $7.53 billion. Marchionne needs a refinancing deal with banks to pay back the government before he can exercise his option to buy the additional stake.

Yesterday’s announcement “takes us one step closer to exiting the US taxpayers’ investment in Chrysler,’’ said Timothy Massad, a Treasury Department acting assistant secretary.

Marchionne is saving money by making the purchase earlier because the cost is linked to the company’s earnings. Marchionne is pushing Chrysler to post its first net income this year since emerging from bankruptcy.

Chrysler expects to almost triple what it calls modified operating profit (excluding interest, taxes, and some pension costs) to more than $2 billion from $763 million last year and to earn as much as $500 million in net income.