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Chrysler to refinance debt by June, clearing way for Fiat takeover

Chrysler is aiming to refinance $7 billion of U.S. and Canadian government debt by June, clearing the way for Fiat S.p.A. to take a majority stake in the U.S.automaker, the companies’ CEO Sergio Marchionne said today.

Chrysler, which is controlled by Fiat under a 2009 bailout, is in talks with investment banks. It must pay back government money before the Italian company can take ownership. “I believe I can do it,” Marchionne said when asked about whether the debt would be refinanced by June.

He added: “The conditions to take on an additional 16 percent (to take majority control) will be there.”

Marchionne said Fiat would likely use its own cash to pay for the additional 16 percent. He declined to give any valuation on how much that additional stake would cost.

He wants to increase Fiat’s ownership of Chrysler to 51 percent in advance of an initial public offering of the U.S. company’s stock, possibly this year. Last month he said the IPO may be delayed until 2012.

Fiat has 25 percent of Chrysler and will announce a hike to 30 percent on Tuesday or in coming days as it meets a milestone to boost its holding, Marchionne said.

A third milestone allowing Fiat to own 35 percent of Chrysler will only be met in the fourth quarter of this year, Marchionne said.

Fiat was given management control and a 20 percent stake in Chrysler’s 2009 bailout deal. Under that arrangement, Fiat can raise its stake in Chrysler to 35 percent if it meets three tests designed to put the U.S. automaker on firmer financial footing. Fiat then has an option to buy the additional 16 percent.

Chrysler’s performance

Asked about Chrysler’s performance, Marchionne said: “I’m satisfied with what we have done in the first quarter. It’s totally in line with what we have told the market. Our cash position is strong.”

Marchionne said he was still confident Chrysler would confirm its $2 billion target for operating profit this year

Chrysler met the first test to develop a more fuel-efficient engine in January, giving Fiat a 25 percent stake. The U.S. automaker must also reach international sales and distribution targets. To cross that hurdle, Fiat must sell Chrysler cars and trucks through 90 percent of its dealers in Latin America.

The automakers are working on a plan to sell Chrysler-made vehicles in Brazil under the market-leading Fiat brand, Mike Manley, who runs Chrysler’s international operations, said last week. The plan would allow the carmakers to avoid negotiating new franchise agreements with Fiat dealers in Brazil; Marchionne said in October the effort was difficult because of regulations governing dealers in Brazil.

“I think we’ll see resolution of it in the near future,” Manley said.

Marchionne is pushing Chrysler to increase its global sales 32 percent in 2011 and post its first annual net profit since emerging from bankruptcy reorganization in 2009.

Fiat agreed with the U.S. government after the bankruptcy to share technology and management with Chrysler in exchange for an initial 20 percent stake and performance targets to increase to 35 percent without paying any cash.

Fiat may pay $1.14 billion to exercise its call option on the last 16 percent if Marchionne makes the purchase in 2011 and $1.37 billion if he buys it next year, according to JPMorgan Chase & Co. analyst Ranjit Unnithan. The cost is linked to Chrysler’s earnings.

Automotive News, April 11th

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