* Debt levels, targets disappoint; shares fall 4.5 pct
* Q2 beats trading profit consensus of 485 mln euros in Q2
* Results incorporate one month of Chrysler for first time
* CEO Marchionne says to announce single mgmt structure
(Adds details from Fiat conference call)
By Silvia Aloisi
MILAN (Reuters) - Concern over Fiat SpA's
ballooning debt dragged its stock lower Tuesday as
the Italian carmaker moved a step closer towards a full merger
with Chrysler Group LLC by outlining plans for a single
Fiat CEO Sergio Marchionne, who also runs Chrysler, raised
his 2011 targets on the back of forecast-beating second-quarter
results that incorporated the No. 3 U.S. automaker for the
first time since Fiat took a majority stake in it last month.
But the new targets were below some analysts' estimates,
and worries about higher-than-expected debt at year-end pushed
Fiat shares 4.5 percent lower to 7.17 euros at the market
The joint management team which Marchionne plans to unveil
in the next few days is seen as a logical step bringing the two
companies closer to a full-blown merger. But analysts say Fiat
needs to first explain why its debt is rising, and how it might
fund the purchase of the Chrysler stake it does not already
"Everything about the operating line looks good. The big
confusion would be around the net debt figure. We'd like to
know why there will be a 2 billion net outflow in the second
half," said a London-based analyst who asked not to be named.
Fiat, Europe's sixth-biggest automaker by market share,
forecast net industrial debt of 5.0 to 5.5 billion euros at the
end of 2011 -- compared with full-year analyst forecasts of 4.8
billion euros and a second-quarter debt of 3.4 billion euros.
Asked about the debt levels in a conference with analysts,
Marchionne noted that the pro forma combined net debt stood at
6.3 billion euros in 2010, so the projected figure for this
year would be an improvement.
Fiat said it now expects 2011 revenues of more than 58
billion euros -- up from an earlier forecast of 37 billion
euros which did not incorporate Chrysler. However the target
was below pro forma combined net revenues of 67 billion euros
Fiat also raised its trading profit target to around 2.1
billion euros -- slightly below an analyst consensus of 2.2
Also weighing on the shares was news that Fiat expects its
share of Brazil's market, which hit record sales in the first
half of the year and is Fiat's fastest-growing market, to
remain flat in 2011 compared with 2010.
"Q2 results are better than consensus but the outlook is
slightly below," wrote J.P. Morgan Cazenove in a report.
Marchionne, credited with turning around Fiat in recent
years, wants to elevate the Italian carmaker to a global player
through a revamped Chrysler. The group has targeted around 100
billion euros ($144.2 billion) in combined revenues by 2014.
He took over management of a bankrupt Chrysler under a 2009
bailout deal and has built up Fiat's stake in the U.S. carmaker
cheaply and more quickly than anticipated.
By the end of this year Fiat's holding will rise to 58.5
percent -- an increase linked to Chrysler developing a
Fiat-based fuel-efficient mid-size
But Fiat needs to decide what to do with the rest of
Chrysler, a 41.5 percent stake that is owned by VEBA, the
United Auto Workers union trust fund. Fiat already has an
option to buy 40 percent of that stake, starting in June next
After initially planning an IPO to allow VEBA to cash in on
its stake, Marchionne now seems to be aiming to buy it.
But if he went for a full takeover of Chrysler, he would
need to convince ratings agencies Moody's and Fitch -- which
have already warned they may downgrade Fiat's debt -- that
Fiat's finances are solid enough.
Marchionne kept his cards close to his chest Tuesday,
saying Fiat had a variety of options on what to do with VEBA.
With 18 billion euros of liquidity expected at end-2011, he
said Fiat had enough money to buy the stake if it wanted, but
added he would not put Fiat's credit rating at risk to do so.
He reiterated that there was a "dichotomy" between the
valuation Fiat put on VEBA's stake -- just over $3 billion --
and the $4.25 billion capped "threshold amount" that was set in
2009 and that VEBA is hoping to cash in.
Expectations that Marchionne would end up buying VEBA's
stake have led to speculation that Fiat might float luxury
sports car maker Ferrari, although Marchionne said there was no
such project on his desk. He said, however, there were assets
he could consider selling.
Fiat, posted second-quarter group trading profit of 525
million euros ($753 million), as strong U.S. and Brazilian
sales helped offset a weak European market in a quarter that
included profits from Chrysler for the month of June.
That compared with a trading profit of 307 million euros
for Fiat alone a year ago and a median analyst forecast in a
consensus distributed by Fiat of 485 million euros. Fiat did
not release 2010 proforma results for the second quarter
(Additional reporting by Deepa Seethamaran in Detroit, Michel
Rose, Valentina Za and Steve Jewkes in Milan; Editing by Andrew
Callus and Gerald E. McCormick)
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