Fiat to Complete Chrysler Buyout: A Win-Win Deal?

Jan 1 2014, 5:46pm CST | by

Fiat to Complete Chrysler Buyout: A Win-Win Deal?
Photo Credit: Forbes Auto

Fiat Chairman Sergio Marchionne expects to realize his goal of acquiring 100% of Chrysler Group LLC later this month, setting the stage to fully merge the two automakers.

Under an agreement announced today, Fiat SpA will pay $4.35 billion to a United Auto Workers retiree healthcare trust to buy the 41.5% of Chrysler that the Italian carmaker doesn’t already own. The deal is scheduled to close by Jan. 20.

The pact ends an 18-month legal battle over the value of the trust’s shares. The agreed-on price is considerably higher than the $3 billion that Fiat reportedly wanted to pay. The payoff is also slightly sweeter than the $41.5 billion price implied by an investment bank’s estimate of Chrysler’s total value last fall. The trust reportedly sought

$5 billion for its stake.

The UAW trust gets cash to fill its $3 billion shortfall in benefits funding for Chrysler retirees.

Fiat will be able to fully merge with Chrysler, gaining greater flexibility to combine operations and giving the struggling Italian company full access to Chrysler’s $11.5 billion cash hoard. The bulk of the purchase price—$2.6 billion—comes from Chrysler itself. That’s all good news for Fiat, which has been struggling in Europe’s weak car market.

The buyout ends Fiat’s lawsuit against the union trust, which wasn’t scheduled to go to court until September. The deal also scuttles the initial public offering that the trust was trying to force Chrysler to hold. An IPO would have established the value of Chrysler stock. But it would have blocked Fiat’s attempt to acquire the entire U.S. company.

Marchionne has said that once Fiat and Chrysler are merged, the combined entity may issue new stock—quite possibly on one of the New York stock exchanges, rather than in Italy. He has hinted that the new company might even be based in the U.S.

Source: Forbes Auto

 
 
 

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