Fiat Signals Interest in Acquiring Canada’s Chrysler Stake
Fiat is seeking to buy Canada’s remaining stake in Chrysler after the automaker repaid government loans, but Ottawa is not yet ready to sell.
Fiat has expressed its intention to purchase the Canadian government’s minority stake in Chrysler, following the automaker’s full repayment of bailout loans to both the US and Canadian governments in May 2011. The move would further consolidate Fiat’s control of Chrysler, which it has steadily increased since first acquiring a stake in the Detroit company in 2009.
The Canadian government received its 1.7 percent interest in Chrysler as part of the 2009 bailout, which also included $1.7 billion in loans to help the automaker survive the industry’s deep downturn. Chrysler’s recent repayment of these loans, including $1.7 billion to Export Development Canada and $5.9 billion to the US Treasury, marked a milestone for the company and its new owner. Fiat initially took a 20 percent stake in Chrysler in 2009, in exchange for management expertise and technology, and has since increased its holding as the company returned to profitability.
Despite Fiat’s interest, the Canadian government is not rushing to divest. After meeting with Fiat and Chrysler CEO Sergio Marchionne, Canadian finance minister Jim Flaherty said Ottawa would wait for the US government’s divestment process to play out before making any decisions regarding its own Chrysler shares. Unlike the US, Canada has no formal mechanism in place for Fiat to force or accelerate the sale of its stake.
Fiat’s growing Chrysler stake
Fiat’s stake in Chrysler has increased through a series of agreements tied to performance targets and loan repayments. With the latest repayments completed in May 2011, Fiat is set to control more than half of Chrysler, strengthening its influence over the company’s operations and product strategy. The Italian automaker’s ambition is to unify management and product development across both firms, creating a global automotive group with broader reach. For more on the business structure, see Fiat Chrysler Automobiles merger exposes financial and operational hurdles.
What’s next for Canada’s Chrysler holding?
The Canadian government’s cautious approach means its 1.7 percent Chrysler stake is likely to remain in public hands until the US completes its own divestment. For Fiat, acquiring the Canadian holding is a logical next step in consolidating control, but the timing will depend on the pace of government decisions on both sides of the border. As the industry watches the ongoing integration of Fiat and Chrysler, attention will remain on whether and when Ottawa decides to sell.
