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Fiat's Chrysler deal poses Italian questions

Investors, media praise Marchionne, but CEO 'has work to do'

03 January, 18:14
Fiat's Chrysler deal poses Italian questions (By Christopher Livesay) (ANSA) - Rome, January 3 - International media and investors praised Fiat Group CEO Sergio Marchionne on Friday for striking a multi-billion-dollar New Year's Day deal to buy up the rest of American automaker Chrysler, but the government and unions at home were quick to raise questions over what it means for the future of Italy's once-mighty automotive industry. After reopening following the January 1 holiday, the Milan bourse on Thursday smiled on Fiat shares, which shot up as much as 16% on news that the Turin-based automaker had gained full control of Chrysler in a $4.35-billion deal after more than a year of negotiations with United Autoworkers (UAW) healthcare trust VEBA to acquire its 41.46% share.

Under the deal, Fiat and Chrysler will pay out $3.65 billion in cash to VEBA, sharing the cost, while Chrysler has agreed to pay the trust an additional $700 million over the next three years.

The Wall Street Journal wrote that Marchionne won a "decisive victory" with the deal.

But it added he still has "significant work to do".

"Now, the deal-master must prove he can forge two weak auto makers into one strong global player," the New York-based business paper said. This will involve considerable effort in the areas of integration, global presence and investment, the source added. The Financial Times said the deal "clears a big bump on Fiat-Chrysler's road" but added that an equity boost to fund the deal - a prospect so far ruled out by Marchionne - "is not expected to be definitive". "A funding boost could help the group shrug off long standing doubts about its firepower for research and development" and also pay down some of its 10-billion-euro net combined debt, the paper wrote. Banking sources told the paper Marchionne was considering a mix of a mandatory and straight convertible bonds of less than 1.5 billion euros after the merger.

The FT also reported the company, upon completion of a merger, plans to list on the New York Stock Exchange in 2014 to highlight "the group's emergence as a US-centric organisation". Meanwhile Italian officials and labor unions showed concerns over how the deal would impact the domestic economy and the national workforce, much of which heavily relies on homegrown production at Fiat, Italy's largest private corporation. The government will "monitor and make sure that Fiat maintains its commitments in relation to its Italian production sites," Industry Undersecretary Claudio De Vincenti said Friday.

"We want Italy to remain the nerve centre both on a managerial level and on the level of innovation, research and development," he added. CGIL, Italy's largest labor confederation, accused the Fiat CEO of putting his country's need's last. "Marchionne's strategy has privileged America without fighting in Italy and in Europe where other producers have defended their production levels and market share," said GCIL chief Susanna Camusso. "At a time of serious economic crisis, Fiat's choices have left problems of re-industrialisation and employment unresolved.

"It is time for Fiat to say what it wants to do here, what it wants to produce and in what factories".

Meanwhile sales of Chrysler cars in the US remain strong, which is key to Marchionne's strategy of propping up flagging Fiat sales in Italy. Chrysler's 2013 sales in the United States were up 9% on year, the sharpest gain since 2007, the Detroit No.3 said Friday. It was the fourth straight year of growth, it said. It also had its best December since 2007 with 6% growth, marking the 45th straight monthly gain.

Fiat sales were a shade down on December 2012.