Italian carmaker Fiat struck a $4.35 billion deal to get full control of Chrysler Group LLC, ending more than a year of tense talks that have obstructed Chief Executive Sergio Marchionne’s efforts to combine the two automakers’ resources.
As a result, Fiat will acquire the 41.46-per-cent stake in Chrysler from a retiree health-care trust linked to the United Auto Workers union, which will receive $3.65-billion (U.S.) in cash for its stake. Additionally, once the deal closes, Chrysler has committed to giving the trust an additional $700-million.
The deal is a victory for Marchionne, who wants to merge Fiat and Chrysler and create a more competitive auto maker with a broader global reach. But he has been at odds with the UAW trust for more than a year over the value of Chrysler, says the Globe and Mail.
“The unified ownership structure will now allow us to fully execute our vision of creating a global automaker that is truly unique in terms of mix of experience, perspective and know-how, a solid and open organization that will ensure all employees a challenging and rewarding environment,” said Sergio Marchionne, CEO of both Fiat and Chrysler.
As part of the agreement, the UAW will adopt the “best practices” of Fiat factories from across the globe in its own plants, although it hasn’t been explicitly stated what these are and how they will come about.
The trust, structured as a voluntary employee beneficiary association, will end plans for an initial public offering of its Chrysler stock. Fiat and the trust will also drop legal action in Delaware intended to resolve a valuation dispute.
“In the life of every major organization and its people, there are defining moments that go down in the history books,” Marchionne said in a statement issued by Turin, Italy-based Fiat. “For Fiat and Chrysler, the agreement just reached with the VEBA is clearly one of those moments.”
“The unified ownership structure will now allow us to fully execute our vision of creating a global auto maker that is truly unique.”
Robert Naftaly, chair of the committee that governs the trust, said: “This agreement is in the best interests of the trust’s UAW Chrysler retiree members and their families who rely on the trust to provide vital health care benefits.”
However, analysts were concerned that the deal will increase Fiat’s already heavy debt burden, despite a relatively low price negotiated by Marchionne after more than a year of talks. Citigroup analysts said Fiat’s debt would become the highest for any European motor manufacturer, reports Reuters.
“Group net debt will rise to around 10 billion euros ($13.8 billion),” they said in a note. “We continue to have concerns about the sustainability of this heavy debt burden.”
Fiat shares rose as much as 16 percent to levels last seen in August 2011 after the deal, which aims to combine the two automakers’ resources and rejuvenate Fiat’s product line-up. It was the stock’s biggest intraday gain since April 2009.
The UAW trust was created in 2007 as a way for General Motors Co, Ford Motor Co and Chrysler to offload their obligations to pay retiree healthcare benefits.