Italian carmaker Fiat SpA struck a $4.35-billion deal to gain full control of Chrysler Group LLC, ending over a year of tense talks that have obstructed CEO Sergio Marchionne’s efforts to combine the two automakers’ resources, and sending Fiat’s shares up 16% in early trade on the Milan Stock Exchange.
It, however, 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 third-largest US automaker.
“They paid less than the market had expected and there will be no capital increase to fund this, so no wonder the stock is flying,” a Milan-based trader said.
“Fiat has already lost many of its market positions in Europe and it won’t be easy to recover that,” said Andrea Giuricin, transport analyst at Milan’s Bicocca University.
Fiat will acquire 41.46% 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 before January 20.