The U.S. Treasury Department said late Thursday, June 2, it will sell its remaining interest in Chrysler Group LLC to Fiat SpA, a move that could lessen Chrysler's need to launch an initial public offering.
Terms of the deal call for Fiat to pay $500 million for the government's 6% stake in Chrysler, and an additional $60 million for the Treasury's rights to acquire shares in the automaker currently owned by a union-managed healthcare trust. Fiat will also pay the Canadian government $15 million for its rights to purchase union shares.
Auburn Hills, Mich.-based Chrysler emerged from Chapter 11 in 2009 majority-owned by the healthcare trust and backed by Fiat, which received a 20% stake in exchange for providing technology and expertise. Fiat has increased its holdings in the quarters since as Chrysler hit milestones including international sales gains and the development of a fuel-efficient engine.
The latest deal would give Fiat control of 52% of Chrysler's privately held shares, with the Italian automaker expected to get an additional 5% stake before year's end when Chrysler begins production of a Fiat-based car that reaches 40 miles per gallon.
The union trust owns about 41% of the company, with roughly 1.7% still owned by the Canadian government. Fiat is in talks with the Canadians for their shares.
Sergio Marchionne, CEO of both Chrysler and Fiat, has worked aggressively to meet those targets quickly and gain more control of Chrysler. Analysts had expected an initial public offering to raise capital to buy off remaining shareholders, but Fiat's success expanding its stake without an offering has diminished the need for a quick IPO.
Marchionne told Bloomberg television Friday morning that the company has made no decision about an IPO, saying Chrysler would consider a number of options for monetizing the union trust's shares in the company. The focus, he said, is on bringing Chrysler and Fiat closer together.
"Ultimately, we need to look at one entity on a combined basis," Marchionne said, "and whether it's an IPO of Chrysler in the U.S. to get it done or an expansion of Fiat's shareholder base, we're open to all options."
Treasury Secretary Tim Geithner in a statement hailed as a success the government's controversial 2009 decision to intervene in Chrysler and General Motors Co. and prevent a potential liquidation of the automakers. "It's clear that President Obama's decision to stand behind and restructure this company was the right one," Geithner said.
The U.S. government committed a total of $12.5 billion to Chrysler, and following the closing of this latest transaction will have recouped about $11.2 billion. Treasury has the right to recover proceeds from the ongoing disposition of assets left behind when Chrysler exited Chapter 11, but the government in its statement said it does not expect a material recovery from those assets and conceded it is "unlikely to fully recover the difference of $1.3 billion."
Lazard served as Treasury's financial adviser on the latest transaction. A Willkie Farr & Gallagher LLP team including Robert Stebbins, Michael Brandt and Delano Ladd provided legal counsel to Fiat.
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