Fiat agrees to buy remaining stake in Chrysler from UAW trust for $3.65 billion Chrysler will pay UAW fund another $700 million over 4 years


Fiat agrees to buy remaining stake in Chrysler from UAW trust for $3.65 billion

Chrysler will pay UAW fund another $700 million over 4 years

Automotive News | January 1, 2014 – 2:27 pm EST

— UPDATED: 1/1/14 3:31 pm ET – adds more terms, background

MILAN — Fiat said today it had signed an agreement to buy the remaining 41.46 percent stake it does not own in its U.S. unit Chrysler Group from the UAW’s VEBA Trust.

In a statement, Fiat S.p.A. said the VEBA, which covers UAW retiree health care costs, would receive an overall $3.65 billion for the stake.

But Chrysler also agreed to separately make a total of $700 million in four annual payments to the UAW’s trust fund.

In view of the financial structure of the deal, Fiat said it would not need to make any capital increase through a public stock offering.

The deal is expected to close on or before Jan. 20, 2014, Fiat said.

"In the life of every major organization and its people, there are defining moments that go down in the history books," Sergio Marchionne, CEO of both carmakers, said in a statement. "For Fiat and Chrysler, the agreement just reached with the VEBA is clearly one of those moments."

Fiat Chairman John Elkann said in the statement he has been looking forward to this day since the rebuilding of Chrysler began in 2009.

"The work, commitment and achievement I have witnessed from Chrysler over the past four and a half years is nothing short of exceptional, and I take this opportunity to officially welcome each and every one of the people in the Chrysler organization to the integrated Fiat-Chrysler world."

Global industry player

Full ownership of Chrysler will enable Marchionne to create a global industry player with better scale to challenge General Motors Co. and Volkswagen AG. He has tried since taking the helm at Fiat in 2004 to buy a competitor to give the struggling Italian manufacturer a worldwide market strategy for growth.

“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.”

Marchionne estimated in June that Fiat and Chrysler combined would be the world’s seventh largest carmaker.

As part of today’s settlement, the UAW agreed to certain commitments to support Chrysler’s manufacturing programs, but no specific details were included in a separate statement issued by Chrysler.

Those efforts will include cooperating in "the continued roll-out of Fiat-Chrysler World Class Manufacturing programs, actively participate in benchmarking efforts associated with implementation of these programs across all of Fiat-Chrysler manufacturing sites to ensure objective performance assessments and provide for proper application of WCM principles and actively assist in the achievement of the Group’s long-term business plan," the statement said.

More benefits

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 1.41 billion euros ($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.

Reuters, Bloomberg and Philip Nussel contributed to this report.

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