Yet again, Jim Chanos has saved himself from steep losses on his short bet in Fiat SpA (BIT:F), the Ferrari maker. Lets go into a little background: Chanos was shorting Fiat until October this year. Between July to October, Fiat rose 6%, thus ending Chanos’ 0.5% short bet with a loss. This loss would have been much bigger, had he not exited the position, as shares of Fiat rocketed 16% in the market today.
Fiat’s shortsellers sitting on big losses
The other stock where Chanos saved himself from bigger losses was Ocado Group PLC (LON:OCDO), a U.K-based online grocery retailer.
The active negative bets disclosed to Italian regulatory authority, CONSOB, amount to 2% of Fiat’s outstanding shares. The current shortsellers of the company are Adage Capital, Pelham Long/Short Fund and Marshall Wace. Each is nursing a big loss today. Shares of Fiat have now risen 76% over a 12-month period, making it a terrible short bet so far.
However, everybody is not as optimistic about Fiat’s future as the market is, and there are still some hurdles in long-term growth.
Fiat to merge with Chrysler
Fiat SpA (BIT:F) revealed that after some resistance on both sides, the Italian company had agreed to buy the remainder of Chrysler in a $4.35 billion deal (including the amount that will be paid after merger is complete). Fiat already owned 58% of Chrysler and after jumping through some hoops, has finally inked a deal with VEBA, the second-largest owner of Chrysler to buy the rest of the company. United Auto Workers retiree benefits trust (VEBA) owned 41% of Chrysler, and the two parties had been haggling over the price for some time now.
Fiat’s truckload of debt
The deal is unique in the aspect that it will be paving the way for a full merger of the Italy-based Fiat with U.S-based Chrysler. The new company will be considered among the major automakers but will also be the largest debt holder in European OEM space; the latter development could put pressure on Fiat SpA (BIT:F)’s future growth. Citi’s Philip Watkins has said that the group debt will rise to $13.8 billion after the deal is closed. Citi noted,
“Indeed, apart from PSA (Peugeot Citroen), all its European peers are in net cash positions. And though credit market conditions are benign, we continue to have concerns about the sustainability of this heavy debt burden.”
While Chrysler has been a profit-making unit for Fiat, the Italian company has been losing sales in Western Europe and Latin American markets. The opinion of some analysts is that the tailwinds from this new deal easily outweigh whatever difficulties the company is facing due to lower auto sales. The market is rejoicing in the fact that Fiat SpA (BIT:F) negotiated a much lower buying price than initially anticipated and also because the company said it will not raise any new equity via rights issue.