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By Bloomberg

Fiat Chrysler Automobiles NV touched the highest price since the carmaker’s creation in October after Chief Executive Officer Sergio Marchionne formally began a stock and bond sale to boost cash by $3.7 billion euros.

Fiat Chrysler is selling at least 87 million shares and a $2.5 billion mandatory convertible bond due in 2016, the London- based manufacturer said in a filing late yesterday. The financing will increase cash to a little more than 20.9 billion euros ($25.8 billion) from just less than 18 billion euros as of Sept. 30, adjusted for the merger in October of Italian carmaker Fiat with U.S. counterpart Chrysler.

Marchionne is seeking to raise about $5 billion to counter mounting debt in a strategy that includes the spinoff of the Ferrari supercar division next year. The CEO, who has said he plans to complete the funding package by Christmas, plans to meet investors in the U.S. next week to promote the sale of stock and debt that will automatically convert to shares.

“All eyes are on Fiat Chrysler’s mandatory convertible bond, as it allows investors to get their hands on Ferrari shares,” said Vincenzo Longo, a strategist at IG Markets, said by phone. “We expect very high demand for Marchionne’s financing package, as shown by an extra slice reserved for underwriters.”

October Debut

Fiat Chrysler rose as much as 3.1 percent to 10.95 euros, the highest figure based on closing prices since the stock’s mid-October debut, and was trading up 2.9 percent as of 1:27 p.m. in Milan. The Italian-traded shares have gained about 56 percent since the listing in Milan and New York, the best performance on the 44-company Bloomberg Global Automobile Index.

Holders of the the mandatory convertible bond will be entitled to stock in Ferrari when Fiat Chrysler distributes 80 percent of division to investors next year. The company is seeking to cut net industrial debt, which stood at 11.4 billion euros at the end of September.

Banks managing the sale include JPMorgan Chase & Co., Goldman Sachs Group Inc., Barclays Plc, UBS Group AG, Citigroup Inc., Bank of America Corp.’s Merrill Lynch unit and Morgan Stanley. The underwriters have the right to buy an additional 13 million shares as well as an extra $375 million of the convertible bonds.

A full exercise of the underwriters’ options may dilute the stock by about 16 percent, and “FCA’s valuation still looks rich to us,” George Galliers, an analyst at Evercore ISI, wrote in a report to clients.

Exor SpA, the holding company of Italy’s Agnelli family that controls Fiat Chrysler, reiterated yesterday that it plans to buy convertible securities to maintain its 31 percent stake in the carmaker.

Fiat Chrysler may beat its debt-reduction target by as much as 20 percent, with the cut by 2016 amounting to 4.8 billion euros rather than the 4 billion euros predicted by management, Gabriele Gambarova, an analyst at Banca Akros, said today in a report to clients.