Fiat SpA tumbled on investors' concerns that the Italian carmaker will need to raise fresh cash to finance Chief Executive Officer Sergio Marchionne's plans to combine with Chrysler Group LLC.
The shares dropped as much as 5.9 percent to 3.28 euros, making it the worst performer in Italy's benchmark FTSE MIB Index and in the Bloomberg European Autos Index. The stock was down 4.7 percent as of 1 p.m. in Milan trading, valuing the company at 4.16 billion euros ($5.33 billion).
Fiat may need to raise between 1.6 billion euros and 2.9 billion euros to finance the purchase of the remaining shares in Chrysler, Philippe Houchois, a London-based UBS analyst said Tuesday. Marchionne said last month that "everything is on the table" to raise capital. A Fiat spokesman had no comment on the matter.
"Fiat may have to start paying around fair value for more Chrysler shares" as the prospect of an initial public offering nears, Houchois said. UBS downgraded Fiat today to neutral from buy on the potential for a capital increase with Chrysler's value being contested in the U.S.
Fiat is in a court dispute with Auburn Hills, Michigan- based Chrysler's minority shareholder regarding the price that it has to pay to boost its ownership to almost 62 percent. The United Auto Workers' retiree health-care trust has said Fiat must pay at least $342 million for the holding, more than double the $140 million that Fiat has said that it owes.
Increasing its stake in Chrysler would help Fiat access the cash flow of the U.S. carmaker to finance a turnaround of the Turin-based company's unprofitable European operations. Fiat shares have lost more than 15 percent since Marchionne presented a plan on Oct. 30 to boost production in Europe by expanding its lineup of upscale models.
Fiat reported 20 billion euros of available liquidity at the end of the third quarter, down from 22.7 billion euros as of June 30. Marchionne said last week that Fiat doesn't need to access Chrysler's cash to finance its plan in Europe.
Wider losses in Europe caused Fiat to cut its 2014 profit goal by 31 percent to 5.2 billion euros. Marchionne has said Fiat needs to fix its business in the region ahead of finishing a full merger with Chrysler.
At least eight analysts have cut their recommendations on Fiat since the European restructuring plan was announced, while none have raised them, according to data compiled by Bloomberg.
With sales set to fall in Italy to the lowest in more than 30 years, Fiat will reduce production at its car plants in the country, a union official said today by phone.
The carmaker today announced temporary layoffs in December and January at its Melfi facility, where it builds the Grande Punto model, Roberto Di Maulo, head of the Fismic Union, said today by phone. Fiat may reduce December production to one week at all its Italian plants, except its Sevel light-commercial vehicle site, Di Maulo said.