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 The agreement, announced on Wednesday, cements 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 No. 3 U.S. automaker.
"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 percent stake in Chrysler it did not
already own from a retiree healthcare trust affiliated with the
United Auto Workers union. The trust, known as a voluntary employee
beneficiary association or VEBA, will receive $3.65 billion in cash
for the stake, $1.9 billion of which will come from Chrysler and
$1.75 billion from Fiat. After the deal closes, Chrysler has
committed to giving the UAW trust another $700 million over three
years.
The deal is expected to close on or before Jan 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 rich than some analysts expected. The sale
of the UAW trust's stake values the No. 3 U.S. automaker at less
than $9 billion. When factoring in the additional $700 million,
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."
"DEFINING MOMENT"
Marchionne, who has run both automakers since Chrysler's 2009 U.S.
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 U.S. automaker's worth with the
trust, which was pushing for a payout of more than $5 billion. In
September, the trust exercised an option enshrined in bankruptcy
documents to force Chrysler to file for an initial public offering.
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Wednesday's 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 center 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.
The UAW trust was created in 2007 as a way for General Motors Co,
Ford Motor Co and Chrysler to offload their obligations to pay
retiree healthcare benefits.
Medical benefits for GM, Ford and Chrysler retirees are handled in
separate accounts and each account was initially to be funded with
cash. But during the 2009 financial crisis, the VEBA agreed to
accept stakes in GM and Chrysler in lieu of cash.
(Reporting by Deepa Seetharaman in
Detroit and Stephen Jewkes in Milan; additional reporting by
Laurence Frost in Paris, Bernie Woodall in Detroit and Agnieszka
Flak in Milan; editing by Anthony Barker and Matthew Lewis)
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