Published December 14, 2012
MILAN/LONDON – Italian carmaker Fiat SpA rebutted a report that it was set to raise money to finance its purchase of a further stake in Chrysler, saying it had no need for extra funds.
Its comment came after an unsourced report in Il Messaggero said Fiat was sounding out UniCredit , Morgan Stanley , Bank of America and Goldman Sachs about the possibility of raising between 1 and 2 billion euros ($1.3-$2.6 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.
The situation is important for Fiat, whose Chief Executive Sergio Marchionne is determined to gain full control of Chrysler by buying the remaining 41.5 percent stake from VEBA, a union trust.
This would 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 stake's value.
Fiat said on October 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, and 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 VEBA'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 about half that price.
Fiat on Monday 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 January 25 and Fiat will file its reply on February 28.
A judge is therefore unlikely to make a ruling 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 remaining 41.5 percent stake before receiving a ruling on the price it must pay for the 16.4 percent it has a right to buy from VEBA.
"As ... 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 increments of 3.3 percent every six months through 2016.
"If the court eventually rules in Fiat's favor, 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."
Both Fiat and VEBA could also decide to settle out of court at any time and reach an agreement on the price of the remaining 41.5 percent in Chrysler that Fiat wants to buy and VEBA wants to sell.
(Additional reporting by Stefano Rebaudo and Tom Hals; Editing by Helen Massy-Beresford and David Holmes)