Fiat Buys Balance of Chrylser in a $4.35 billion Deal

Fiat ChryslerYou can now add Chrysler, Dodge, Jeep, Mopar, Ram and SRT to the ranks of Abarth, Alfa Romeo, Ferrari, Fiat, Lancia and Maserati.  In a $4.35 billion dollar deal announced today, Turin-based Fiat S.p.A. gets the remaining 41.46 percent of Auburn Hills-based Chrysler Group, LLC that they didn’t acquire a few years back.  The Chrysler Group, LLC is now a wholly-owned subsidiary of Fiat S.p.A.

 

Fiat is beginning 2014 with a bang by buying those 41.46 percent of Chrysler from the United Auto Workers’ VEBA Trust Fund (who received the stake from Chrysler’s 2009 government-led bankruptcy).  The $4.35 billion dollar deal breaks down like this… Fiat will pay the UAW’s VEBA Healthcare Trust $3.65 billion: $1.75 billion cash up front and $1.9 billion from a “special distribution” dividend payment.  The Chrysler Group will pony up the remaining $700 million over four installments.

 

This deal, which is expected to be completed by January 20th, voids any previous plans for a forced Chrysler Group I.P.O. at the hands of the United Auto Workers union.  Fiat seems happy with the Fiat Chrysler buyout deal.  Fiat’s chairman John Elkann said the following in a statement:

“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… 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.”

Fiat CEO and Chrysler Group Chairman and CEO, Sergio Marchionne, added:

“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.”

As a concept, this Fiat Chrysler UAW buyout deal isn’t all that surprising as Fiat and Chrysler have very, very close for several years now.  The Multi-Air engine from the Fiat 500 has even made its way into the Dodge Dart and into the 2014 Jeep Cherokee.  As a business move, most of the auto industry big-wigs were expecting and preparing for Fiat, Chrysler and the UAW going the I.P.O. route.

 

What does this mean for Fiat and Chrysler cars?  Who knows?  Only time will tell.  I’m still hoping for a little bit of Viper to slither its way into Ferrari and a little of Ferrari to prance its way into SRT… For the full story check out the press releases from Chrysler Group, LLC and Fiat S.p.A. below.

Fiat Chrysler Press Releases

FIAT S.p.A. Press Release

Fiat to acquire remaining equity interests in Chrysler Group LLC from VEBA Trust Fiat S.p.A. (“Fiat”) today announced an agreement with the VEBA Trust1, under which its wholly owned subsidiary, Fiat North America LLC (“FNA”), will acquire all of the VEBA Trust’s equity membership interests in Chrysler Group LLC (“Chrysler Group”), representing the 41.4616% of Chrysler Group not currently held by FNA. The transaction is expected to close on or before January 20, 2014.

In consideration for the sale of its membership interests in Chrysler Group, the VEBA Trust will receive aggregate consideration of U.S.$3,650 million consisting of:

  • a special distribution payable by Chrysler Group to its members, in an aggregate amount of approximately U.S.$1,900 million (FNA’s portion of the special distribution will be paid by FNA to the VEBA Trust as part of the purchase consideration)2; and
  • at closing, FNA will pay the remainder of approximately U.S.$1,750 million in cash purchase consideration to the VEBA Trust.

Fiat expects to fund the U.S.$1,750 million in cash from available cash on hand. Chrysler Group expects to fund the special distribution from available cash on hand.

Contemporaneously with the transactions described above, Chrysler Group and the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (the “UAW”) have agreed to a memorandum of understanding under Chrysler Group’s existing collective bargaining agreements to provide for additional contributions by Chrysler Group to the VEBA Trust of an aggregate of U.S.$700 million in four equal annual installments. The initial payment will be made on closing of the transaction with Fiat and additional payments will be payable on each of the next three anniversaries of the initial payment. Chrysler Group expects to fund the initial contribution to the VEBA Trust from available cash on hand.

In consideration for these contributions, the UAW will agree to certain commitments to continue to support the industrial operations at Chrysler Group 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.

“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” said John Elkann, Chairman of Fiat. “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, had this to say: “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.”

As part of the transactions, FNA and the VEBA Trust will agree to dismiss with prejudice the current proceedings before the Delaware Court of Chancery with respect to the interpretation of the call option agreement pursuant to which Fiat has, through FNA, exercised three tranches of a call option to acquire membership interests in Chrysler Group held by the VEBA Trust. All of these membership interests will be acquired by FNA in connection with the transactions described above.

Given the funding arrangements for this transaction, it is not envisioned that Fiat will require equity capital to be raised via a rights issue.

Turin, January 1st, 2014

Chrysler Group, LLC Press Release

Chrysler Group Announces Agreement With UAW Calling for Contributions to VEBA Trust and Also Announces a Special Distribution

January 1, 2014 , Auburn Hills, Mich. – Chrysler Group and the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (the “UAW”) have agreed to a memorandum of understanding to supplement Chrysler Group’s existing collective bargaining agreement. Under the MoU, Chrysler Group will provide additional contributions to the VEBA Trust of an aggregate of $700 million in four equal annual installments. The initial payment will be made on closing of a transaction in which the VEBA Trust will sell to Fiat North America, one of Fiat’s wholly owned subsidiaries, all of the VEBA Trust’s equity interest in Chrysler. Additional payments of $175 million will be payable on each of the next three anniversaries of the initial payment. Chrysler Group expects to fund the initial contribution to the VEBA Trust from available cash on hand.

In consideration for these contributions, the UAW will agree to certain commitments to continue to support the industrial operations at Chrysler Group 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 Chrysler Group Board of Directors has also determined to support the declaration and payment by Chrysler Group of a special distribution in an aggregate amount of approximately $1,900 million,1 subject to the Board completing its diligence and receiving independent assurance regarding the distribution payment capacity of Chrysler Group, a process that management expects will be completed on or before January 20, 2014 Fiat to acquire remaining equity interests in Chrysler Group LLC from VEBA Trust.

 

Author: Nick Glasnovich

Founder & Executive Editor of TickTickVroom.com.

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