Fiat SpA agreed to buy the remaining stake in Chrysler Group LLC owned by a United Auto Workers retiree health-care trust in a $4.35 billion deal, the last step needed before the Italian and U.S. carmakers can merge.
Sergio Marchionne, chief executive officer of both carmakers, structured the deal so that Chrysler puts up most of the cash, easing strains on the Italian parent as it seeks to end losses in Europe. The agreement with the trust, structured as a voluntary employee beneficiary association or VEBA, gives Fiat full ownership of the No. 3 U.S. automaker less than five years after its government-financed bankruptcy.
“In the life of every major organization and its people, there are defining moments that go down in the history books,” Marchionne said today in a statement. “For Fiat and Chrysler, the agreement just reached with the VEBA is clearly one of those moments.”
Full ownership of Auburn Hills, Michigan-based Chrysler will combine two regional manufacturers into a global player with better scale to challenge General Motors Co. and Volkswagen AG. Marchionne, who has sought a merger since taking the helm at Fiat in 2004, estimated in June that Fiat and Chrysler combined will be the world’s seventh largest carmaker.
“Marchionne did a stroke of genius in the New Year’s Day,” said Giuseppe Berta, a professor at Bocconi University in Milan who has written several books on the carmaker. “He showed he’s a real Maestro.”
Fiat, which already holds 58.5 percent of Chrysler, will pay the trust $1.75 billion in cash when the deal closes, the Turin-based company said today in a statement. Chrysler will contribute $1.9 billion through a special dividend to complete the transaction for the 41.5 percent stake.
In addition, Chrysler agreed to pay the trust $700 million in four annual installments, with the first to be made when the deal closes, which Fiat expects by Jan. 20.
Merging the two companies would allow Fiat to pool cash with Chrysler and tighten cooperation between its Alfa Romeo, Lancia brands and Maserati brands with the Chrysler, Dodge and Jeep nameplates.
Fiat already relies on Chrysler to sustain profit amid losses in Europe, where the car market has fallen to a two- decade low. Group net income, including minority holdings, totaled $1.94 billion in 2012. Without Chrysler, Fiat would have posted a 1.04 billion-euro loss.
Fiat started accumulating Chrysler stock in June 2009 as part of a government and labor-union bailout of the U.S. carmaker, which was losing as much as $100 million a day at the time. Rather than paying cash for the initial 20 percent holding and subsequent 15 percent stake, Fiat provided management experience and technology and helped Chrysler meet various performance milestones, such as developing models.
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