MILAN, Jan. 2 – Fiat SpA agreed to buy the remaining stake in Chrysler Group LLC owned by a United Auto Workers retiree health-care trust in a US$4.35 billion deal, the last step needed before the Italian and US carmakers can merge to create the seventh-largest automaker.
Sergio Marchionne, chief executive officer of both carmakers, structured the deal, announced yesterday, 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 also avoids an initial public offering of Chrysler stock, which would have complicated Marchionne’s attempt to combine the companies. The agreement with the trust, structured as a voluntary employee beneficiary association or VEBA, gives Fiat full ownership of the No. 3 US automaker less than five years after its government-financed bankruptcy.
“In the life of every major organisation and its people, there are defining moments that go down in the history books,” Marchionne said yesterday 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% of Chrysler, will pay the trust US$1.75 billion in cash when the deal closes, the Turin-based company said today in a statement. Chrysler will contribute US$1.9 billion through a special dividend to complete the transaction for the 41.5% stake.
In addition, Chrysler agreed to pay the trust US$700 million in four annual installments, with the first to be made when the deal closes, which Fiat expects by Jan. 20. The Italian company said the money would come from cash on hand and that a share sale probably won’t be needed.
The size of the transaction is lower than some analysts forecast. Banca Akros estimated in December that Marchionne would need to pay US$4.5 billion for the holding. As of December 20, Fiat was seeking to pay about US$4.2 billion for the holding, compared with the trust’s demands for at least US$5 billion, a person familiar with the talks said at the time.