Fiat to Take 35% Stake in Chrysler

Milan Italy January 20, 2009; The Street.com reported that Italian carmaker Fiat will take a 35% stake in Chrysler but won't inject cash into the troubled U.S. automaker and won't commit to funding Chrysler in the future, according to the terms of a deal agreed to Tuesday, CNBC reports.

The deal offers Fiat access to Chrysler's American platform and distribution network in the U.S. while Chrysler will benefit from Fiat's European platform and distribution network, CNBC said.

Fiat's vice president and the heir to the Italian auto empire confirmed earlier on Tuesday that the company was in talks with Chrysler, news agencies said, and Fiat shares were suspended amid media reports of a possible partnership with the U.S. company.

The ANSA and Apcom news agencies quoted John Elkann, a member of Fiat's founding Agnelli family, as saying that "it's no mystery we are talking, we have been talking for a while," the Associated Press reports.

Elkann did not give details on the negotiations, saying that more information would come from the upcoming statement and a Fiat board meeting on Thursday, ANSA reported.

Fiat spokespeople were in a meeting and not immediately available to confirm Elkann's comments, AP reports.

The Wall Street Journal reported a deal from Fiat and Chrysler could be announced as early as Tuesday in which Fiat could take control of the U.S. company's operations.

Under terms of a pact that is being worked out, Fiat is likely to take a 35% stake in Chrysler by the middle of this year, the Journal reports, citing people familiar with the matter. It would have the option of increasing that to as much as 55%.

The Financial Times reports a person involved in the talks said the companies had signed a memorandum of understanding on the deal.

Fiat wouldn't immediately put cash into Chrysler, the Journal reports. Instead it would obtain its stake mainly in exchange for covering the cost of retooling a Chrysler plant to produce one or more Fiat models to be sold in the U.S., these people said. Fiat also would provide engine and transmission technology to help Chrysler introduce new, fuel-efficient small cars.

The partnership would help each company compete with larger and more global rivals such as Toyota and Volkswagen.

Chrysler spokeswoman Lori McTavish said, "In today's economic environment, talks are going on between companies in all industries -- ours is no different."

The pact with Fiat could give Chrysler a stronger case as it seeks more loans from the U.S. government, the Journal reports. Chrysler received $4 billion in emergency loans from the Treasury Department and has seen sales plummet over the past three months. The auto maker needs to show it is viable by March to keep those loans and to qualify for the $3 billion in additional government aid, the Journal adds.

The tentative terms Fiat and Chrysler have worked out would call for Chrysler's owners, Cerberus Capital Management and Daimler, to retain stakes in the U.S. car maker, people familiar with the discussions said. Cerberus will see its 80.1% stake diluted. It is unclear whether Daimler will want to keep its entire 19.9% stake.

News of the Fiat and Chrysler partnership was previously reported by The Auto Channel and Automotive News, a trade publication.