Fiat and UAW Agree to Complete Chrysler Acquisition

Deal nets union more than $4 billion for health care trust.

by on Jan.01, 2014

Sergio Marchionne's patience paid off as the Fiat and the UAW reach a deal for the union's stake in Chrysler.

After months of speculation about when — or if — the deal would be done, it is: Fiat SpA and the UAW have reached an unexpected New Year’s Day agreement for the automaker to buy the union’s remaining stake in once-bankrupt Chrysler Group for $3.65 billion up front, an additional $700 million after the deal closes.

Fiat acquires the remaining 41.46% from the union’s health care trust and is expected to complete the acquisition, a key goal of CEO Sergio Marchionne, by Jan. 20. The Italian automaker will pay $1.75 billion from its own bank account, while Chrysler will pay $1.9 billion. Chrysler also agreed to pay the VEBA an additional $700 million in in four $175 million annual installments after the deal is done.

The two parties had been viewed as being far apart on the purchase price for the stake — which could have scuttled the long-planned takeover by the Italian maker. The UAW had repeatedly suggested it wanted more than $5 billion while Fiat and Chrysler CEO Marchionne said he wouldn’t pay it. In fact, at one point last autumn, Marchionne began dropping hints that Fiat might consider severing its ties with the U.S. maker entirely.  However, the two parties continued to quietly search for mutual ground.

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“Clearly it’s a victory for Marchionne,” said Stephanie Brinley, analyst with IHS Automotive. “It took a lot of time and a lot of energy. It’s time well spent. More importantly, it’s resolved. They’ve eliminated the uncertainty in terms of who owns who.”

Brinley noted that getting the sale resolved allows Marchionne and his senior management team to focus on the company going forward, which they’ll need to do because the new trans-Atlantic automaker faces significant challenges.

“They still have two weak players,” she said. “That’s the next issue: how do you take two weak players and create one strong player.”

(Chrysler gets creative to bolster bottom line. For more, Click Here.)

Producing one “strong player” will force the company to determine what brands will show up where and how to do it without diluting them. However, one issue Marchionne will no longer face is which company will pay for what: it’s all one pile of money now.

(Click Here to see Fiat’s $12.3-billion plan to jump start sales in Europe.)

Until recently, it looked like the logjam might force Fiat to have to accept an IPO of Chrysler stock, a move that could have complicated the management process.  The offering was initially expected to take place by the end of 2013, but was delayed indefinitely as the two sides continued to talk. At this point, that option is moot.

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5 Responses to “Fiat and UAW Agree to Complete Chrysler Acquisition”

  1. heyfred3000 says:

    Fiat seems to be getting some idea what to do with Chrysler worldwide. I saw not one, but two, Chrysler 300′s on the Autostrada last night between Alcamo and Palermo (Sicily) and its getting to be a regular thing to see Fiat Freemonts (Dodge Journey) navigating downtown streets – amazing since there are many 2-way streets they don’t dare turn into for fear of meeting another car in 1,000+ y/o Palermo. Don’t know how they survive the hoards of tiny hatchbacks.

  2. dwight mannsburden says:

    heh. My dad was in the AF and we lived in Germany in the early 70s…we had a 1966 Ford Country Squire. Imagine driving those tiny streets in THAT. The Journey would be a piece of cake in comparison

    I guess now we wait to see what happens re: HO location.

  3. simplyfantabulous says:

    This seems pretty much win-win for Marchionne, who appears to be getting what he wants at more or less the price he wanted all along. For the UAW, they may be in a position to better understand the effects of Obamacare than the rest of us. I recall when Chrysler itself nearly kicked the bucket and was seeking federal assistance under the Iacocca regime and it was revealed that the actual then-current life expectancy of hourly retirees was about 18 months. Wonder if that’s still true?

    • Paul A. Eisenstein says:

      I would tend to think life expectancy has improved. That’s a pretty shocking number.

      Paul E.

  4. simplyfantabulous says:

    Shocked me then, shocks me now. That’s why I asked.