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Fiat expresses confidence in US legal challenge

Wednesday - 7/31/2013, 4:40pm  ET

COLLEEN BARRY
AP Business Writer

MILAN (AP) -- Italian carmaker Fiat expressed confidence Wednesday that it will prevail in its dispute with Chrysler's minority shareholder on the price of some outstanding shares, citing a favorable ruling on key elements of the case.

A Delaware judge on Tuesday ruled in Fiat's favor on legal points on the formula for setting the price, but said he needed to hear more evidence to set a price. He gave no indication of a time frame.

"Fiat looks forward to resolving the few remaining issues in the litigation through the discovery requested by the court, and remains confident that those residual issues will also be resolved in its favor," the car company said in a statement.

Fiat, which took control of Chrysler as it emerged from bankruptcy in 2009 and now owns a 58.5 percent stake, is eager to agree on a price so it can push ahead and complete the purchase of all Chrysler's outstanding shares and fully merge the two carmakers.

It has exercised three call options of 3.3 percent. But it has been stymied on completing the purchases by the price dispute and has options on two more tranches in January and July of next year.

Fiat says the first tranche is valued at $139.7 million. But the minority shareholder -- a trust that pays health care bills for Chrysler's union retirees called a Voluntary Employees Beneficiary Association, or VEBA -- contends the shares are worth at least $342 million.

The judge's finding "basically validates Fiat's arguments" and could push VEBA to an out-of-court settlement, said UBS analyst Philippe Huchois. "If I put myself in Fiat's shoes, I would say to VEBA, 'The judge is siding with us. We can litigate, we can argue endlessly, but the pre-ruling is that we are right,' " Huchois said. "So VEBA takes a big risk."

The price of 16.6 percent of the outstanding shares looks to be decided by a formula at the center of the court challenge, while the remaining 24.9 percent is up for negotiation.

Huchois said it is now in VEBA's interest to reach a deal before Fiat exercises the January call option. That's because some analysts believe an initial public offering would value Chrysler more than the formula for the call options.

The trust has asked Fiat to begin working on an IPO of Chrysler, but cannot formally compel it to follow through.

Fiat and Chrysler CEO Sergio Marchionne has said he favors buying the trust's stake outright over selling shares of Chrysler to the public in order for the trust to monetize its stake. Nonetheless, he told an analyst conference call on Tuesday that Chrysler would be in a position to move on an IPO by the end of the year.

Marchionne eventually plans to fully merge Fiat and Chrysler to get more cost savings and access to Fiat's cash. The companies already share management, car platforms and have combined balance sheets, but there is a strict separation of assets.

Fiat SpA shares are now traded publicly on the Milan stock exchange, while Chrysler is technically a private company with no publicly traded shares. Presumably, Fiat shareholders would be offered a stake in the new company if they approve the merger.

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Auto Writer Tom Krisher contributed to this report.


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