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Fiat buying Chrysler — valued over $10b

by David Zatz on

fiat-chryslerToday, Fiat announced that it has reached an agreement to buy all remaining shares of Chrysler from the VEBA Trust, which was created by DaimlerChrysler and the United Auto Workers to transfer retiree health care responsibility from Chrysler to an independent, nonprofit entity.

With this move, Fiat has assured its goal of owning Chrysler in its entirety. The VEBA Trust currently owns over 41% of the company.

The transaction will take place on or before January 20, 2014.

Fiat is paying the VEBA Trust $3.65 billion for its share within the month, starting with a special distribution by Chrysler and Fiat North America of $1.9 billion; at closing, Fiat North America will pay the remaining $1.75 billion. In both cases, the money is coming from available cash on hand.

In addition to these amounts, Chrysler will pay a total of $700 million in four equal annual installments (of $175 million each), bringing the grand total to $4.35 billion. The initial $175 million will be paid on the closing of the transaction, and the next three installments will be paid at the anniversaries of the closing.

Together, the payments assume a value for Chrysler Group of over $10.6 billion, far over most analysts’ estimates. However, in 2008, analysts also did not believe Chrysler would be profitable today.

The UAW has agreed to support Chrysler’s industrial operations and “the further implementation of the Fiat-Chrysler alliance, including to use best efforts to cooperate in the continued roll-out of Fiat-Chrysler World Class Manufacturing programs, actively participate in benchmarking efforts associated with implementation of these programs across all of Fiat-Chrysler manufacturing sites to ensure objective performance assessments and provide for proper application of WCM principles, and actively assist in the achievement of the Group’s long-term business plan.”

The “VEBA Trust” is technically the UAW Retiree Medical Benefits Trust, a Voluntary Employees’ Beneficiary Association. The money paid by Chrysler and Fiat goes directly to retiree medical care, making the deal a win-win. The VEBA will still be financially pressed to provide adequate benefits, given rising costs, but the higher than expected payments will ease the burden.

sergio marchionne“I have been looking forward to this day from the very moment that we were chosen to assist in the rebuilding of a vibrant Chrysler back in 2009,” wrote Fiat chairman John Elkann. “The work, commitment and achievement I have witnessed from Chrysler over the past four and a half years is nothing short of exceptional, and I take this opportunity to officially welcome each and every one of the people in the Chrysler organization to the integrated Fiat-Chrysler world.”

Sergio Marchionne, Chief Executive of Fiat and Chairman and CEO of Chrysler Group, wrote, “In the life of every major organization and its people, there are defining moments that go down in the history books. 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 automaker 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.”

FNA and the VEBA Trust agreed to dismiss with prejudice their proceedings before the Delaware Court of Chancery. Fiat does not believe it will need to issue additional stock.

Many observers believe that the purchase of CNH (Case New Holland) and its merger with Fiat Industrial will provide a template for Chrysler’s organization in the future. The tax headquarters of the combined company is likely to be in a country with minor or no corporate taxes, which could include the Netherlands or even the United Kingdom (which only taxes companies based on revenue raised domestically, a small share of Chrysler and Fiat’s income). The actual headquarters of the combined outfit is likely to stay in Italy, while Chrysler will continue to be run from the CTC in Auburn Hills and Chrysler House in Detroit.

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