Fiat shares jump on Chrysler merger deal

Thu Jan 2, 2014 11:18am EST
 
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By Agnieszka Flak

MILAN (Reuters) - Fiat's $4.35 billion deal to gain full control of Chrysler Group LLC sent its shares to a near 2-1/2-year high on Thursday, despite doubts over whether the Italian carmaker could use the merger to cut losses in Europe.

Investors welcomed the deal struck by Chief Executive Sergio Marchionne, under which Fiat will buy the 41.46 percent of the No. 3 U.S. automaker it does not already own, without raising funds from the stock market.

Marchionne, who has run both companies since Chrysler's 2009 U.S. government-funded bankruptcy restructuring, aims to merge the two into the world's seventh-largest auto group.

However, analysts were concerned that the deal will increase Fiat's already heavy debt burden, despite a relatively low price negotiated by Marchionne after more than a year of talks.

Fiat shares rose as much as 16 percent to levels last seen in August 2011 after the deal, which aims to combine the two automakers' resources and rejuvenate Fiat's product line-up. It was the stock's biggest intraday gain since April 2009.

"They paid less than the market had expected, and there will be no capital increase to fund this, so no wonder the stock is flying," a Milan-based trader said.

"While it's still to be seen how this will bode for Fiat's future, this is a good start to the year for a company that has had quite a tough ride recently, especially in Europe."

Fiat will buy the stake in the U.S. group from a retirees' healthcare trust affiliated to the United Auto Workers union, with Chrysler putting up most of the funding.   Continued...

 
The Chrysler logo is shown on a new Chrysler 200 on the showroom at the Massey-Yardley Chrysler, Dodge, Jeep and Ram automobile dealership in Plantation, Florida October 8, 2013. REUTERS/Joe Skipper