July 31, 2013 / 9:02 AM / 4 years ago

U.S. ruling could delay Fiat's Chrysler buyout

A man walks past a Fiat logo at a showroom in Noida, on the outskirts of New Delhi April 3, 2013. REUTERS/Mansi Thapliyal

MILAN (Reuters) - A ruling by a U.S. judge risks delaying Fiat’s FIA.MI plan to buy up all of Chrysler unless it can reach an out-of-court settlement with a healthcare trust that is a minority shareholder in the U.S. group.

The Italian carmaker said on Wednesday it “looked forward” to solving a dispute with an autoworkers’ healthcare trust in court after winning a partial victory on Tuesday in its path to buy the 41.5 percent of Chrysler it does not already own.

Delaware Chancery Court Judge Donald Parsons on Tuesday accepted the carmaker’s legal positions in two pivotal disputes in its legal battle with VEBA, the United Autoworkers-affiliated healthcare trust that owns 41.5 percent of Chrysler.

However, the judge stopped short of ordering VEBA to sell 54,154 Chrysler shares to Fiat for $139.7 million, as the latter had sought, saying certain questions still needed to be answered through testimony at a trial.

“Fiat looks forward to resolving the few remaining issues in the litigation, through the discovery requested by the judge, and remains confident that those residual issues will also be resolved in its favor,” Fiat said in a statement on Wednesday.

A trial is likely to take between a year and 18 months, said a person familiar with the matter. However, another person said the lengthy process makes it more likely that Fiat and VEBA will reach an out of court settlement on the dispute.

“We view the ruling as positive for Fiat and likely to help an out-of-court agreement,” said UBS analyst Philippo Houchois in a research note. “We still view end 2013 as a likely deadline for an agreement as VEBA.”

Fiat’s lawyers will now be forced to argue in court with representatives of the healthcare trust about why Fiat should pay less than the trust is asking in a deal the latter needs to pay future benefits for retired Chrysler workers.

The UAW became Chrysler’s second-largest shareholder when Chrysler emerged from bankruptcy in 2009 and the union swapped future healthcare payments owed to it for a stake in the company. VEBA is a trust that manages those healthcare benefits on behalf of the union.

Fiat already runs the two automakers as a single company, but wants to buy the rest of Chrysler to squeeze out more synergies, cut borrowing costs and access some of Chrysler’s cash flow.

Fiat shares were volatile in early trade, falling 0.8 percent to 5.98 euros at 0850 GMT (4.50 a.m. ET)

“The ruling is a step forward and is good news,” said a Milan trader. “But it’s not decisive and the market is not discounting it as a done deal yet.”

Reporting by Jennifer Clark and Stephen Jewkes; editing by James Jukwey

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