Italian car maker Fiat SpA said on Wednesday it has signed an agreement to buy the stake in U.S. auto maker Chrysler Group LLC it does not already own, ending months of tense negotiations and allowing chief executive Sergio Marchionne to pursue his goal of creating the world’s seventh-largest auto group.
Fiat will acquire the 41.46-per-cent stake in Chrysler from a retiree health-care trust affiliated with the United Auto Workers union, which will receive $3.65-billion (U.S.) in cash for its stake. Additionally, once the deal closes, Chrysler has committed to giving the trust an additional $700-million.
The deal is a victory for Marchionne, who wants to merge Fiat and Chrysler and create a more competitive auto maker with a broader global reach. But he has been at odds with the UAW trust for more than a year over the value of Chrysler.
Chrysler will contribute $1.9-billion in cash, while Fiat will put up $1.75-billion to buy out the trust, which is known as the VEBA, both companies said in separate news releases.
In addition, Chrysler said it signed agreement with the UAW to pay a total of $700-million in four equal annual payments to the VEBA after the Chrysler stake sale closes. The VEBA manages and pays for medical benefits for Chrysler retirees.
The deal is expected to close on or before Jan 20. In view of the financial structure of the deal Fiat said it would not need to make any capital increase through a rights issue.
Marchionne has led both auto makers since 2009. The Fiat-Chrysler alliance was one of the centrepieces of the Obama administration’s 2009 restructuring of the U.S. auto industry.
“In the life of every major organization and its people, there are defining moments that go down in the history books,” Marchionne said in a statement issued by Turin, Italy-based Fiat. “For Fiat and Chrysler, the agreement just reached with the VEBA is clearly one of those moments.”
“The unified ownership structure will now allow us to fully execute our vision of creating a global auto maker that is truly unique."
The deal eliminates the need for an initial public offering of the union fund’s stake, which analysts had previously valued at $5.6-billion.
Fiat went to court last year seeking a judgement on the price, but the trial date was set for next September.
Marchionne can’t spend Chrysler’s cash on Fiat’s operations unless the companies merge. In recent months he made it clear that he preferred to settle the dispute without an IPO, but filed the paperwork for the offering in September at the trust’s request.
Chrysler’s profits have helped prop up Fiat on the balance sheet as the Italian automaker struggles in a down European market.
The Auburn Hills, Mich., automaker earned $464 million in the third quarter on U.S. sales of the Ram pickup and Jeep Grand Cherokee, its ninth-straight profitable quarter. The results boosted Fiat, which earned $260 million in the quarter. Without Chrysler’s contribution, Fiat would have lost $340 million.
With files from Associated Press