Fiat’s shares have dropped as investors fear that the automaker will have to raise fresh cash to be able to buy Chrysler Group.
According to Philippe Houchois, a London-based UBS analyst, Marchionne might need to raise between 1.6 billion euro and 2.9 billion euro to be able to purchase Chrysler and have access to the US automaker’s cash flow, which will be of utmost importance for the Turin-based company’s unprofitable European operations. But the economic crisis in Europe made the automaker give up its target of 31% profit to 5.2 billion euro by 2014.
“Fiat may have to start paying around fair value for more Chrysler shares” as the prospect of an initial public offering nears, Houchois said.
Fiat shares were down 5.9% to 3.28 euro and the stock decreased 5.8% at 11:08 a.m. in Milan trading, binging the company’s value at 4.11 billion euro ($5.3 billion). Since Marchionne announced his European restructuring plan, eight analysts have cut their recommendations on Fiat.
The crisis effects in Europe have forced CEO Sergio Marchionne to focus on increasing Fiat’s operations on the continent instead of buying more shares in Chrysler. Fiat currently owns 58.5% in the US automaker, from 20% it owned in 2009 after Chrysler’s bankruptcy.