ITALIAN car maker Fiat has struck a $4.35bn deal to gain full control of the Chrysler Group.
The deal ends more than a year of talks that have frustrated chief executive Sergio Marchionne’s efforts to combine the two firm’s resources.
The agreement cements Mr Marchionne’s reputation as one of the industry’s leading dealmakers.
However, it remains to be seen whether a merger will be enough to cut Fiat’s losses in Europe. Mr Marchionne’s plan to shore up Fiat depends on its ability to share technology, cash and dealer networks with Chrysler, the third largest US car maker.
“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 $3.65bn in cash for the stake, $1.9bn of which will come from Chrysler and $1.75bn from Fiat.
After the deal closes, Chrysler has committed to giving the UAW trust another $700m over three years.
The deal is expected to close on or before January 20.
“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.”
Mr Marchionne, who has run both carmakers since Chrysler’s 2009 US government-funded bankruptcy restructuring, aims to merge Fiat and Chrysler into the world’s seventh-largest automotive group.
The deal will allow Chrysler to avoid an initial public offering, or IPO.
In a statement, Mr 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, because Fiat’s long-term plan to cut losses in Europe depends on its ability to deepen ties with Chrysler.
Chrysler is now a profit centre for Fiat, but the two companies currently are forced to manage their finances separately.
A full merger will make it easier to combine the cash pools of the two companies, giving Fiat more funds to expand its product line-up.