“Fiat needs a stake of over 80 per cent before it can access Chrysler’s precious cashflows. That must surely be the goal now”
Fiat could buy another 3.3 per cent of Chrysler next month, but Bernstein Research analyst Max Warburton reckons the company should seriously think about mobilising enough cash to buy the just under 42 per cent it doesn’t yet own and grab all of the American company’s cash flows.
Fiat has an option to buy 3.3 per cent in Chrysler from the VEBA retiree healthcare trust in July. It has the right to buy a maximum of 3.3 per cent every six months until 2016. Fiat’s current stake is 58.5 per cent.
“At present, it (Chrysler) has little value to Fiat – despite the investment of time and money, it yields nothing in cash terms, apart from providing a route to market for a few Fiat 500s and some extra Giulietta platforms. Fiat needs a stake of over 80 per cent before it can access Chrysler’s precious cashflows. That must surely be the goal now,” Warburton said.
Warburton said Fiat has enough money on its balance sheet to complete the Chrysler purchase, and if it didn’t, selling some of Ferrari would fund the deal.
Reckless?
Warburton upgraded its rating of Fiat to “Outperform”, with the proviso that some investors might think this reckless during the deepening Eurozone crisis.
“We can’t put lipstick on a pig, but we believe European losses have stabilised, (absent a further Eurozone crisis, we don’t see much downside for Italian and wider European car sales) and Brazilian margins have stabilised, at least for 2012. Brazil is still the major risk factor,” Warburton said.
Neil Winton – June 1, 2012
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