Share price of Italian automaker
) jumped 15.1% to $9.55 on Jan 2, 2014, after the automaker
signed an agreement with the UAW Retiree Medical Benefits Trust
(VEBA Trust) to acquire 100% stake in Chrysler Group. The VEBA
Trust owns 41.5% of Chrysler.
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Fiat, which holds a 58.5% stake in Chrysler, had been trying to
acquire the remaining shares from the trust for months. However,
the two owners were not able to settle on the purchase price
earlier. In Sep 2013, this conflict also resulted in announcement
of an IPO by Chrysler.
Fiat will be paying $1.75 billion in cash to finance the
transaction. Further, the Chrysler Group will pay about $1.9
billion as extraordinary dividends to make partial payment for
The deal is expected to close by Jan 20. Fiat will not require
additional capital to finance the deal. Both Fiat and Chrysler
will make the payments from their respective cash balances.
Chrysler Group and the UAW have also signed a memorandum of
understanding under which Chrysler Group will provide VEBA Trust
with $700 million in four equal installments. The first payment
will be made on the closing of the deal. The remaining three
installments will be made over the next three years on the same
date. As a result of this payment, UAW will support the
industrial operations at Chrysler Group and the further
implementation of the Fiat-Chrysler alliance.
Fiat strives to become the largest player in the automaker
industry, beating automaker aces like
Honda Motor Co., Ltd.
General Motors Company
). With the completion of this merger, Fiat will become the
seventh largest company in the auto industry.
Notably, Italian unions apprehend that the merger will negatively
impact production and employment in the country. However, Fiat
expects the deal to prove beneficial in the long run. In the
third quarter of 2013, Fiat reported substantial losses owing to
a sluggish European economy and weak sales in Brazil. This was
partially offset by a significant contribution from Chrysler.
Chrysler traded on the New York Stock Exchange (NYSE) till Nov
1988. Later on, it was acquired by
) and then Cerberus Capital Management purchased an 80% stake in
the company. However, Fiat acquired Chrysler in 2009 when the
latter went bankrupt. The parent company has managed to turn the
Fiat currently carries a Zacks Rank #3 (Hold).