Fiat SpA has secured complete ownership of Chrysler Group in a deal worth $4.35 billion that will conserve cash for the Italian automaker while creating a true global automaker with a better opportunity to compete with General Motors.
Fiat was up in Milan trading the most in nearly five years after CEO of both the Italian parent company and Chrysler, Sergio Marchionne reached an agreement to buy the remaining 41.5% stake from the healthcare trust for retirees held by the United Auto Workers.
Chrysler, the No. 3 carmaker in the U.S. will put up the majority of the financing for this transaction, underscoring Marchionne’s reputation as being a dealmaker.
The new agreement will limit the amount of cash Fiat, based in Turin, must spend to take control and merge with Chrysler.
Fiat came to Chrysler’s rescue five years ago by taking it out of bankruptcy. With its complete control, it gives the Italian company the opportunity to gain financial resources within the U.S. to help turn its unprofitable operation in Europe around.
Marchionne has sought this since 2004 when he took the reins of Fiat. He has wanted to combine forces with another automaker to challenges Volkswagen AG, General Motors and Toyota in sales.
Assigning a majority of the new agreement to Chrysler is a coup for the Italian CEO and will be considered a positive surprise said an auto industry analyst in Singapore. The deal will successfully secure the financial and operational future of Fiat.
Fiat’s stock was up over 16%, its biggest gain intraday since April of 2009, and was 13% higher at midday trading in London. Fiat stock, which is at its high since July of 2011, was up by over 57% in 2013.
The Italian carmaker, which had already owned 58.5% of Chrysler, will pay the healthcare trust $1.75 billion when the deal closes. Chrysler is contributing $1.9 billion via a special dividend, which will complete the transaction for the remaining stake of 41.5%.
Chrysler also agreed to make a $700 million payment to the trust in four yearly installments. The first will be made at the time the deal closes, which Fiat announced it expects to take place by January 20.
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