Chrysler merger sees Fiat's shares jump, worries on latter's debt increases

January 2
11:16 AM 2014

Shares of Italian automaker Fiat was seen to have jumped on Thursday after it has struck a deal worth $4.35 billion for full control of Chrysler Group LLC. However, a Reuters report noted that worries persist on whether Fiat could use the merger in order to regain its losses in the European market.

Stocks of Fiat increased to as much as 16%, which was a record high since August 2011. The merger was said to rejuvinate the product lineup of Fiat in the process.

The report said investors clearly welcomed the deal facilitated by Chief Executive Sergio Marchionne, of which the Italian automaker will acquire 41.46% of the third top automaker in the US it does not own yet without tapping the stock market for funds.

Marchionne has been running both automakers since the bankruptcy restructuring of Chrysler in 2009 funded by the US government. Reuters said in its report Marchionne intended to merg both firms and create the seventh-largest auto group in the world.

Analysts, however, expressed their worries over the developments of both firms despite the low acquisition price Marchionne negotiated as a result of talks that run over a year, since Fiat's massive debt has been increasing.

A Milan-based trader said about the merger, "They paid less than the market had expected and there will be no capital increase to fund this, so no wonder the stock is flying. While it's still to be seen how this will bode for Fiat's future, this is a good start to the year for a company that has had quite a tough ride recently, especially in Europe."

Citigroup analysts chimed in, saying that the debt Fiat has will become the biggest for any motor manufacturer in Europe. In a note, they said, "Group net debt will rise to around 10 billion euros ($13.8 billion) upon completion of this transaction ... leaving it the most indebted OEM (original equipment manufacturer) in Europe. We continue to have concerns about the sustainability of this heavy debt burden."

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