Fiat S.P.A., the other automaker Marchionne runs, will pay $1.27 billion to reach a 51% stake in Chrysler by year-end. The Italian automaker aims to increase its stake to 46% in the second quarter of 2011 after completing refinancing arrangements with banks, which will enable Fiat to pay back the government loans.
The remaining 5% will come from the U.S. after the automaker meets performance targets that were part of the company's agreement with the White House in its 2009 bankruptcy reorganization that was made possible by the government loans.
Marchionne had previously said that he expected Chrysler's Initial Public Offering to take place by the end of this year. Recently, however, he said he was rethinking the timing. It appears that Marchionne will be noncommittal on the timing of Chrysler's stock offering.
Chrysler owes the U.S. and Canadian governments a total of $7.53 billion. Marchionne will need to reach his refinancing deal with banks to pay back the government debt before he can exercise his option to buy the additional 16 percent that he wants.. The CEO says the whole transaction will save the company money because the bank's finance terms will be less costly than the governments'.
Chrysler, under Marchionne is earning operating income and is in the beginning stages of a comeback, but the cost of government loan interest is dragging the company's overall net earning into the red.
Chrysler expects to nearly triple what it calls "modified operating profit" to more than $2 billion in 2011 from $763 million last year, and earn as much as $500 million in net income, its first since exiting bankruptcy in 2009. "Modified operating profit" does not include interest, taxes and other items such as pension costs.
Back in 2009, The White House Auto Industry Task Force picked Fiat to take over management of Chrysler in part because no other automaker had emerged with an offer that made any sense. There was talk during the deliberations in early 2009 of merging General Motors and Chrysler, but that was shot down by the executives advising the White House on the bailout of the automakers.
Fiat had not put any cash into the deal that saved Chrysler, which had been owned by private-equity group Cerberus Capital LLC after it purchased the automaker from German automaker Daimler in 2007. Instead, Fiat has been on a fast-tracked program to share its own technology with Chrysler, updating Chrysler, Dodge and Jeep vehicles, and developing a new flock of vehicles largely using Fiat vehicle engineering platforms and engines.
At the same time, though, Fiat has begun taking some of Chrysler's vehicles, such as Jeep Grand Cherokee and the Chrysler 300 and 200 and selling them in new markets. In the case of the Chrysler cars, they are being marketed as Lancias in Europe. Lancia is Fiat's premium brand.