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Milan – Investors worldwide have welcomed the deal under which Fiat will buy the 41% of Chrysler it does not already own, without raising funds from the stock market.
Fiat’s $4.35bn deal to gain full control of Chrysler sent its shares to a near 2½-year-high on Thursday, despite doubts over whether the Italian carmarker could use the merger to cut losses in Europe.
Chief Executive Sergio Marchionne, who has run both companies since Chrysler's 2009 US government-funded bankruptcy restructuring, aims to merge the two into the world's seventh-largest vehicle group.
However, analysts were concerned that the deal will increase Fiat's already heavy debt burden, despite a relatively low price negotiated by Marchionne after more than a year of talks.
Capital increase
Fiat shares rose as much as 16% to levels last seen in August 2011 after the deal, which aims to combine the two automakers' resources and rejuvenate Fiat's product line-up. It was the stock's biggest intraday gain since April 2009.
A Milan-based trader said: “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."
Fiat will buy the stake in the US group from a retirees' healthcare trust affiliated to the United Auto Workers union, with Chrysler putting up most of the funding.
However, Citigroup analysts said Fiat's debt would become the highest for any European motor manufacturer.
"Group net debt will rise to around $13.8bn," they said in a note.
Technology
"We continue to have concerns about the sustainability of this heavy debt burden."
It remains to be seen whether the merger will cut Fiat's losses in Europe, where it had promised to break even by 2016.
Fiat's plan depends on its ability to share technology, cash and dealer networks with Chrysler easily and cheaply.
Chrysler and Fiat currently have to manage their finances separately.
A full merger will make it easier - but not automatic - to combine the cash pools of the two companies, giving Fiat more funds to expand its product line-up.
Fiat’s $4.35bn deal to gain full control of Chrysler sent its shares to a near 2½-year-high on Thursday, despite doubts over whether the Italian carmarker could use the merger to cut losses in Europe.
Chief Executive Sergio Marchionne, who has run both companies since Chrysler's 2009 US government-funded bankruptcy restructuring, aims to merge the two into the world's seventh-largest vehicle group.
However, analysts were concerned that the deal will increase Fiat's already heavy debt burden, despite a relatively low price negotiated by Marchionne after more than a year of talks.
Capital increase
Fiat shares rose as much as 16% to levels last seen in August 2011 after the deal, which aims to combine the two automakers' resources and rejuvenate Fiat's product line-up. It was the stock's biggest intraday gain since April 2009.
A Milan-based trader said: “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."
Fiat will buy the stake in the US group from a retirees' healthcare trust affiliated to the United Auto Workers union, with Chrysler putting up most of the funding.
However, Citigroup analysts said Fiat's debt would become the highest for any European motor manufacturer.
"Group net debt will rise to around $13.8bn," they said in a note.
Technology
"We continue to have concerns about the sustainability of this heavy debt burden."
It remains to be seen whether the merger will cut Fiat's losses in Europe, where it had promised to break even by 2016.
Fiat's plan depends on its ability to share technology, cash and dealer networks with Chrysler easily and cheaply.
Chrysler and Fiat currently have to manage their finances separately.
A full merger will make it easier - but not automatic - to combine the cash pools of the two companies, giving Fiat more funds to expand its product line-up.
