MILAN/DETROIT (Reuters) ? Italian carmaker Fiat SpA struck a $4.35 billion deal to gain 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.
The agreement, announced on Wednesday, cements Marchionne?s reputation as
the industry?s consummate dealmaker about a decade after he took the helm
of Fiat as a car business newcomer, analysts and bankers said.
But it remains to be seen whether a merger will be enough to cut Fiat?s
losses in Europe. Marchionne?s plan to shore up Fiat depends on the
ability to share technology, cash and dealer networks with Chrysler, the
No. 3 U.S. automaker.
?This is an increasingly American company now, because in Europe, and
especially in Italy, the business conditions remain difficult,? said
Andrea Giuricin, transport analyst at Milan?s Bicocca University. ?Fiat
has already lost many of its market positions in Europe and it won?t be
easy to recover that.?
Fiat will acquire the 41.46 percent stake in Chrysler it did not already
own from a retiree healthcare trust affiliated with the United Auto
Workers union. The trust, known as a voluntary employee beneficiary
association or VEBA, will receive $3.65 billion in cash for the stake,
$1.9 billion of which will come from Chrysler and $1.75 billion from Fiat.
After the deal closes, Chrysler has committed to giving the UAW trust
another $700 million over three years.
The deal is expected to close on or before Jan 20. Fiat said that because
of how the deal is structured it will not need to make any capital
increase through a rights issue.
The VEBA?s payout is less rich than some analysts expected. The sale of
the UAW trust?s stake values the No. 3 U.S. automaker at less than $9
billion. When factoring in the additional $700 million, Chrysler is worth
?We thought they were going to have to pay a lot more than that,? a
London-based analyst at a major investment bank said. ?The market?s going
to love this ? Marchionne?s done it again. He?s brought in a deal that
looks like a cracking one on the face of it and he doesn?t need to do a
Marchionne, who has run both automakers since Chrysler?s 2009 U.S.
government-funded bankruptcy restructuring, aims to merge Fiat and
Chrysler into the world?s seventh-largest auto group.
But he has been at odds over the U.S. automaker?s worth with the trust,
which was pushing for a payout of more than $5 billion. In September, the
trust exercised an option enshrined in bankruptcy documents to force
Chrysler to file for an initial public offering.
Wednesday?s deal will allow Chrysler to avoid an IPO.
In a statement, Marchionne called the buyout a defining moment for the two
?The unified ownership structure will now allow us to fully execute our
vision of creating a global automaker,? he said.
The Chrysler buyout talks have been closely watched by debt and equity
investors as Fiat?s long-term plan to cut losses in Europe depends on its
ability to deepen ties with Chrysler.
Chrysler is now a profit center for Fiat, but the two companies currently
are forced to manage their finances separately. A full merger will make it
easier ? but not automatic ? to combine the cash pools of the two
companies, giving Fiat more funds to expand its product line-up.
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.
Medical benefits for GM, Ford and Chrysler retirees are handled in
separate accounts and each account was initially to be funded with cash.
But during the 2009 financial crisis, the VEBA agreed to accept stakes in
GM and Chrysler in lieu of cash.
(Reporting by Deepa Seetharaman in Detroit and Stephen Jewkes in Milan;
additional reporting by Laurence Frost in Paris, Bernie Woodall in Detroit
and Agnieszka Flak in Milan; editing by Anthony Barker and Matthew Lewis)
- posted 6 years ago