M&A

Zero Percent Financing? Fiat Pays No Cash for Chrysler Stake

Deal with Italian automaker gives it 35 percent, with most of the value of the deal being in creation of a "powerful new global competitor."
Stephen TaubJanuary 20, 2009

Chrysler LLC and Fiat S.p.A. announced a deal that gives the Italian company a 35 percent equity interest in the embattled U.S. automaker without a cash investment. Fiat also is not expected to provide Chrysler with funding in the future.

Mostly, the value of the deal is in the alliance, say both firms. In their joint announcement, the companies played up the value of product and platform sharing, expanding Chrysler’s current product portfolio to include more compact models. The transaction also allows for technology sharing, including fuel efficient and environmentally friendly powertrain technologies; and will give Chrysler access to additional markets, including distribution for Chrysler vehicles in markets outside of North America.

In addition, Fiat would provide management services supporting Chrysler’s submission of a viability plan to the U.S. Treasury.

Details in the announcement from Fiat and Chrysler were thin. But the Wall Street Journal, citing sources, said that Fiat also has the option of increasing the stake to as much as 55 percent. Fiat will cover the cost of retooling a Chrysler plant to produce one or more Fiat models to be sold in the U.S., according to the paper.

The alliance would be consistent with the terms and conditions of the U.S. Treasury financing to Chrysler, according to the announcement. At the beginning of the year, Chrysler received a $4 billion emergency loan from the U.S. government.

On Friday, Chrysler Financial was granted the right to borrow up to $1.5 billion from the Treasury Department’s Troubled Asset Relief Program.

“This initiative represents a key milestone in the rapidly changing landscape of the automotive sector and confirms Fiat and Chrysler commitment and determination to continue to play a significant role in this global process,” said Sergio Marchionne, CEO of Fiat Group. “The agreement will offer both companies opportunities to gain access to most relevant automotive markets with innovative and environmentally friendly product offering, a field in which Fiat is a recognized world leader while benefitting from additional cost synergies.”

“A Chrysler/Fiat partnership is a great fit as it creates the potential for a powerful, new global competitor, offering Chrysler a number of strategic benefits, including access to products that compliment our current portfolio; a distribution network outside North America; and cost savings in design, engineering, manufacturing, purchasing and sales and marketing,” said Bob Nardelli, Chairman and CEO of Chrysler LLC. “This transaction will enable Chrysler to offer a broader competitive line-up of vehicles for our dealers and customers that meet emissions and fuel efficiency standards, while adhering to conditions of the Government Loan.”

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