Fiat S.p.A., an Italian automobile manufacturer, has struck a $4.35 billion deal which will give it full control over the Chrysler Group LLC. It is more than a year now that Chief Executive Sergio Marchionne had been putting in efforts to get two auto makers' resources merged into one. He reportedly called the buyout as a defining moment for both companies. “For Fiat and Chrysler, the agreement just reached with the VEBA is clearly one of those moments. I will be forever grateful to the leadership team for the support and unwavering dedication shown to the integration project that today has taken its final shape. The unified ownership structure will now allow us to fully execute our vision of creating a global auto maker that is truly unique in terms of mix of experience, perspective and know-how, a solid and open organization that will ensure all employees a challenging and rewarding environment,” he added.
This agreement was announced on January 1, 2014 and it has cemented Marchionne's reputation as a highly adept deal maker in the automotive industry. However, it would be interesting to see, if this merger will prove sufficient to cut company's losses in Europe. Notably, about a decade before, he took the command of Fiat as a newcomer in the car business. Notably, the success of this buyout would primarily depend on sharing technology, cash, dealer networks and other resources with Chrysler, which is ranked third in the US auto market. Andrea Giuricin, transport analyst at Milan's Bicocca University, said, “This is an increasingly American company now, because in Europe, and especially in Italy, the business conditions remain difficult. Fiat has already lost many of its market positions in Europe and it won't be easy to recover that.”
This buyout has put on end of uncertainties around 'Fiat to acquire remaining equity interests in Chrysler Group LLC from VEBA Trust'. The transaction is likely to be finalised on or before January 20, 2014. According to it, Fiat now will be acquiring the remaining 41.46 per cent stake in Chrysler that is not held by FNA (Fiat North America LLC) at present. Fiat reportedly stated that the deal is so structured that it won't call for making any increase in the capital though rights issue.
VEBA (Voluntary Employee Beneficiary Association) Trust will now get US $3.65 billion in cash for the stake: $1.9 billion will be coming from Chrysler and rest $1.75 billion from Fiat. Furthermore, contemporaneously with this deal, Chrysler Group and the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (UAW) too have come to an agreement (memorandum). As per this agreed Memorandum of Understanding (MoU), after the transaction with Fiat closes, Chrysler Group will make additional contribution of US $700 million in four equal annual instalments to VEBA Trust. The initial payment will be payable on closing the deal with Fiat, while rest three have to be paid over the next three years on the same date as that of the initial payment. According to a press release, Chrysler Group will make the first contribution to the VEBA Trust from 'available cash on hand'.
UAW, in consideration for contributions by Chrysler Group, has also agreed to continue its support for latter's industrial operations. It has also made a commitment to further implement the Fiat-Chrysler alliance. Some other commitments in the consideration, as per the press release, include cooperation in the continued roll-out of Fiat-Chrysler World Class Manufacturing programs and active participation in benchmarking efforts related with implementation of these initiatives across all Fiat-Chrysler production sites. It will ensure objective performance assessments and offer proper application of WCM principles. Along with, the commitment also includes active assistance in the achievement of company's long-term business program.
Interestingly, some analysts believe that VEBA's payout is not what they had expected. Chrysler's worth has been estimated to be around $10.5 billion, after factoring in $700 million. A London-based analyst at a major investment bank rightly said, “We thought they were going to have to pay a lot more than that. 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.”
