Fiat Near Deal to Buy All of Chrysler?

By Giancarlo Navach, Stefano Rebaudo, Jennifer Clark, Isla Binnie and Agnieszka Flak

Shares in Italian carmaker Fiat rose more than 5 percent Monday after its top management pulled out of the Frankfurt car show, fueling speculation it may be close to a deal, possibly to buy out the rest of its U.S. unit Chrysler.

Fiat said on Friday chief executive Sergio Marchionne wouldn't go to Frankfurt because of "work commitments," without elaborating. Chairman John Elkann has also pulled out of the key industry event, his spokesman said Monday.

"The absence of Marchionne at such an important event makes you think he has something more important to do and this boosts speculation," a trader said. A source familiar with the situation said Marchionne was staying in Italy, but didn't give any other details.

Another Milan-based broker said Marchionne may be involved in negotiations with a U.S. health care trust to reach an agreement on the purchase of the trust's stake in Chrysler. Fiat is expected to buy the trust's 41.5 percent holding in Chrysler and then merge the two manufacturers to create the world's seventh-largest auto group by sales.

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The United Auto Workers health care trust became Chrysler's second-largest shareholder when Chrysler emerged from bankruptcy in 2009 and the union swapped future health care payments owed to it for a stake. The health care trust, known as VEBA, manages those health care benefits on behalf of the union.

Fiat and VEBA have been at loggerheads over the price for the minority stake, and Marchionne may be looking to settle the dispute out of court to avoid a lengthy legal battle.

"The news of Marchionne's absence from Frankfurt has surprised everyone a bit," another trader said. "Now there is hope of some acceleration in the negotiations with VEBA on the Chrysler stake."

Should the battle with VEBA proceed to court, Fiat may have to wait until 2015 for a trial, which in turn could take more than a year to complete.

Fiat runs the two automakers as a single company, but wants to buy the rest of Chrysler to squeeze out more synergies, cut borrowing costs and access some of Chrysler's cash flow.

Shares in Fiat were up 4.4 percent at €6.065 by 1225 GMT (8:25 a.m. Eastern time) after earlier hitting a session high of €6.12. The stock was outperforming a 1 percent rise in the DJ Stoxx index for the European auto industry.

Some traders also suggested that Marchionne might have withdrawn from the Frankfurt show to prepare an upcoming roadshow for truck and tractor maker Fiat Industrial, which is merging with its U.S. unit CNH. However, Fiat Industrial stock was only up slightly Monday.

Marchionne is the chairman of Fiat Industrial.

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