Italian carmaker Fiat has struck a $4.35bn deal to gain full control of Chrysler Group, ending more than a year of tense talks.
The agreement, announced yesterday, cements chief executive Sergio 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 number three automaker in the USA.
"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 per cent stake in Chrysler it did not already own from a retiree healthcare trust affiliated with the United Auto Workers union (UAW), which was created in 2007 as a way for General Motors, Ford Motor and Chrysler to offload their obligations to pay retiree healthcare benefits.
The trust, known as a voluntary employee beneficiary association or VEBA, will receive $3.65bn in cash for the stake, $1.9bn of which will come from Chrysler and $1.75bn from Fiat. After the deal closes, Chrysler has committed to giving the UAW trust another $700m over three years.
The deal is expected to close on or before January 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 than some analysts expected. The sale of the UAW trust's stake values the number three automaker at less than $9bn. When factoring in the additional $700m, Chrysler is worth $10.5 billion.
"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 capital increase."
Marchionne, who has run both automakers since Chrysler's 2009 US 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 US automaker's worth with the trust, which was pushing for a payout of more than $5bn. In September, the trust exercised an option enshrined in bankruptcy documents to force Chrysler to file for an initial public offering, but the deal will allow Chrysler to avoid an IPO.
In a statement, Marchionne called the buyout a defining moment for the two companies.
"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 centre 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 lineup.