Fiat aims to boost Chrysler stake amid legal tussle

MILAN/DETROIT (Reuters) - Fiat SpA plans to exercise an option to buy another 3.3 percent in Chrysler Group LLC, the latest step in its march to buy out the U.S. automaker's minority shareholder.

The Italian automaker notified the shareholder, a retiree healthcare trust fund affiliated with the United Auto Workers union, of its intention to buy the stake for $198 million, Fiat said in a statement on Thursday.

It is unclear if the UAW trust fund, a voluntary employee beneficiary association called a VEBA, will accept the offer. Fiat and the trust are still locked in a legal battle over the price of another 3.3 percent stake Fiat attempted to buy last year.

A determination by a Delaware court over that price "is currently expected within the next several months," Fiat said.

Fiat now owns 58.5 percent of Chrysler, while the UAW retiree trust owns the rest. If the sale of both 3.3 percent stakes goes through, Fiat will own 65.17 percent of Chrysler.

Chief Executive Sergio Marchionne, who runs both automakers, is intent on Fiat gaining full control of Chrysler. That would allow Fiat to restructure its debt, boost earnings and support its struggling European operations.

But the UAW trust, which manages medical benefits for 824,000 retirees, is seeking to maximize the holding's value to cover escalating healthcare costs for Chrysler's retirees.

The UAW trust took the stake in Chrysler during the U.S. automaker's government-financed restructuring in 2009. As part of that restructuring, Fiat was given the right to buy 16.4 percent of Chrysler in tranches of up to 3.3 percent until 2016.

But Fiat and the VEBA have been wrangling over Chrysler's value in court since September, after the UAW trust rebuffed Fiat's attempts to pay $139.7 million for a 3.3 percent stake, saying the price was too low. Fiat then sued the UAW trust fund.

The two parties are attempting to resolve the dispute in a Delaware court. The VEBA says its 41.5 percent stake in the smallest U.S. automaker is worth $1.7 billion, while Fiat says its value is $754 million.

A VEBA spokesman did not have an immediate comment on Fiat's announcement. An attorney for the VEBA declined to comment.

(Reporting by Antonella Ciancio in Milan and Deepa Seetharaman in Detroit; editing by Steve Scherer, Dan Grebler and Leslie Adler)