May 27, 2011

Fiat to buy government's stake, end U.S. ownership of Chrysler

01:57 PM
By Fred Meier, USA TODAY

UPDATE 3:20 ET with additional details from the Associated Press.

Fiat notified the U.S. Treasury today that it will exercise an option to buy out the government's remaining 6% stake in Chrysler Group.

When Fiat buys the shares, it will end all U.S. government ownership in the company. That would close out the U.S. involvement less than two years after the 2009 Obama Administration-controlled Chrysler bankruptcy and bailout that gave 20% and control to Fiat -- a remarkable turnaround.

The 6% would bring Fiat's ownership of Chrysler to a majority 52%. Under the option, a price for the government stake will negotiated within 10 business days -- or by about June 10. If no deal is reached, Fiat would pay a price determined by investment banks appointed by both parties.

This week, Chrysler also repaid its $7.6 billion in outstanding bailout loans from the U.S. and Canadian governments.

Even the loan repayment, U.S. taxpayers are still out about $2 billion on the $10.5 billion bailout of Chrysler (some of it going to the old Chrysler). The price Fiat will pay for the remaining 6% is unlikely to be that high, and the government already has said that it's unlikely all the money will be recovered.

How Fiat's ownership has grown:

After the initial 20%, the bankruptcy deal called for Fiat to be given three more 5% chunks if it met three goals set by the government and to be able to buy 16% after the loans were repaid. Fiat has got two of the three goal rewards and this week paid $1.3 billion for the 16%, bringing its ownership to 46%.

Buying out the U.S. would take it to 52% and Fiat has said it expects get the last 5% goal stake (for build a 40 mpg car in the U.S.) by the end of this year to go to to 57%. And Fiat has an option to buy part of the stake now held by the United Auto Workers Health Trust that, if exercised, could take its ownership of Chrysler to 70%.

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