Christian Georges, Industrial Sectors Strategist at Olivetree Securities, comments on Fiat’s purchase of the US Treasury’s 6% stake in Chrysler…
“The announcement is great news for Fiat shareholders on their way to the target share price of €8 and above. Sergio Marchionne was keen to proceed with the purchase quickly and to boost his stake in Chrysler to about 60% post the summer as “the more we wait the more we will pay for it”. Hence higher profits at Chrysler in coming quarters, reflecting the sharp reduction of financial discounts in the US market, would have translated into a higher price to be paid to the US Treasury. The announcement that Fiat has acquired the option
to buy-out the union’s remaining stake suggests that no IPO may be required. Instead, we may get a full-blown merger with Fiat and associated listing in the US. This is great news as it would rank Fiat alongside GM and Ford for US investors.”
“With a stake over 50% Fiat will be able to consolidate Chrysler in to its accounts. While Fiat is losing money in Europe, Chrysler makes money in the US – particularly since it will not be paying high interest rates on government loans anymore. In fact, Chrysler is outperforming domestic peers in the US due to the on-going renewal of key models. This suggests the valuation of Chrysler (likely within Fiat in the future) is worth more than what Fiat has paid.”
“In Europe, Fiat CEO Marchionne is moving apace. He is set to succeed in imposing identical working rules in Italy to those applying elsewhere in Europe. He is re-introducing the Alfa-Romeo brand and leveraging on the existing Chrysler distribution network to relaunch the Lancia brand. In coming months, the perception of Fiat as the weaker player in European autos is about to change dramatically, as demonstrated by the 2011 International Engine of the Year Awards being given to Fiat’s 875cc two-cylinder TwinAir engine.”
