Fiat Purchases Remaining Chrysler Stake, Will Wholly Own Chrysler
01-01-2014, 07:43 PM
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Fiat Purchases Remaining Chrysler Stake, Will Wholly Own Chrysler Fiat to acquire remaining equity interests in Chrysler Group LLC from VEBA Trust
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.
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.
01-02-2014, 09:31 AM
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Fiat Gains Full Control of Chrysler in $4.35 Billion Deal
By Tommaso Ebhardt and Mark Clothier Jan 2, 2014 4:45 AM MT
www.bloomberg.com
Fiat SpA (F) secured full ownership of Chrysler Group LLC in a $4.35 billion agreement that will conserve the Italian company’s cash while creating a global carmaker with better scale to take on General Motors Co. (GM)
Fiat rose the most in almost five years in Milan trading after Sergio Marchionne, chief executive officer of Chrysler and its Italian parent, struck an accord to buy a 41.5 percent stake from a United Auto Workers retiree health-care trust. The No. 3 U.S. carmaker will put up most of the funding for the transaction, underscoring the CEO’s reputation as a dealmaker.
“Marchionne did a great job,” Vincenzo Longo, a strategist at IG Group in Milan, said by phone. “Fiat couldn’t get a better deal.”
The agreement limits the amount of money that Turin-based Fiat must spend to take over and merge with Chrysler, which it helped rescue from bankruptcy almost five years ago. That puts the Italian company in a position to gain financial resources from the U.S. unit to help turn around unprofitable European operations. Marchionne has sought since taking the helm at Fiat in 2004 to combine the company with another carmaker to challenge Toyota Motor Corp., GM and Volkswagen AG (VOW) in sales.
Assigning the majority of the transaction to Chrysler is “a bit of a coup and will be seen as a big positive surprise,” said Max Warburton, an analyst at Bernstein Research in Singapore. “The deal successfully secures Fiat’s operational and financial future.”
Stock Jumps
Fiat jumped as much as 16 percent, the biggest intraday gain since April 2009, and was trading up 13 percent at 6.74 euros as of 12:43 p.m., valuing the carmaker at 8.43 billion euros ($11.5 billion). The stock, which is at the highest price since July 2011, climbed 57 percent in 2013.
The Italian manufacturer, which already holds 58.5 percent of Auburn Hills, Michigan-based Chrysler, will pay the trust $1.75 billion in cash when the deal closes, Fiat said yesterday in a statement. Chrysler will contribute $1.9 billion through a special dividend to complete the transaction for the 41.5 percent stake.
In addition, Chrysler agreed to pay the trust $700 million in four annual installments, with the first to be made when the deal closes, which Fiat expects by Jan. 20. The Italian company said the money would come from cash on hand and that a share sale probably won’t be needed.
IPO Scrapped
The trust, structured as a voluntary employee beneficiary association, will end plans for an initial public offering of its Chrysler stock. Fiat and the trust will also drop legal action in Delaware intended to resolve a valuation dispute.
“In the life of every major organization and its people, there are defining moments that go down in the history books,” Marchionne said in the statement. “For Fiat and Chrysler, the agreement just reached with the VEBA is clearly one of those moments.”
Ron Bloom, a Lazard Ltd. vice chairman, advised Fiat on the transaction.
The cost of insuring Fiat’s debt against losses using credit-default swaps fell 37 basis points to 304 basis points, the lowest in almost three years and the biggest decline since March 2012, according to data compiled by Bloomberg. A decline signals an improvement in perceptions of credit quality.
Fiat’s 6.75 percent notes due October 2019 jumped 2.7 cents on the euro to a record 110 cents at 10:16 a.m. in Milan while the carmaker’s 7.75 bonds maturing in October 2016 rose one cent to 112 cents.
Stake Spending
Including earlier purchases of holdings from the U.S. and Canadian governments, Fiat’s spending on Chrysler stakes will total $3.7 billion. That compares with the $36 billion that the then Daimler-Benz AG paid for the U.S. company in 1998.
The DaimlerChrysler combination unraveled in 2007, when Cerberus Capital Management LP bought 80 percent of Chrysler for $7.4 billion. During its nine years of ownership by the Stuttgart, Germany-based maker of Mercedes-Benz luxury cars, Chrysler posted annual profits of as much as $5 billion and losses almost as large.
The Fiat-VEBA agreement’s value is less than some analysts forecast. Banca Akros estimated in December that Marchionne would need to pay $4.5 billion for the trust’s holding.
Marchionne restarted negotiations with the VEBA the week before Christmas, after Fiat’s first proposal in months was initially rejected, people familiar with the matter said at the time. As of Dec. 20, Fiat was seeking to pay about $4.2 billion for the stake, compared with the trust’s demands for at least $5 billion, a person familiar with the talks said.
U.S. Industry
The transaction comes as the U.S. auto industry rebuilds lineups to propel record sales and profits amid management transitions. Detroit-based GM, which gets a new CEO when Mary Barra succeeds Dan Akerson on Jan. 15, brought out 18 new or revamped models in the U.S. in 2013 and plans 14 more this year. Dearborn, Michigan-based Ford Motor Co. plans to introduce 23 vehicles worldwide this year, an onslaught that risks being overshadowed by speculation that CEO Alan Mulally will leave to take the top role at Microsoft Corp.
Chrysler has increased sales for 44 straight months, led by vehicles developed with help from Fiat, including the Dodge Dart and Jeep Cherokee, as well as offerings such as the Fiat 500 city car.
Italian Investment
A merger will allow Fiat to pool funding with Chrysler and tighten cooperation between its Alfa Romeo, Lancia and Maserati brands and the Chrysler, Dodge and Jeep nameplates. Fiat plans to invest as much as 9 billion euros to revive underused Italian factories to stem losses in Europe. That plan depends on Fiat’s access to Chrysler’s $12 billion cash hoard.
The time line for a merger may be outlined as soon as late January, when Fiat’s board meets, said two people familiar with the situation who asked not to be identified because the talks are private.
Chrysler and Fiat together delivered 4 million vehicles worldwide in 2012. That compares with 9.07 million vehicles sold by Wolfsburg, Germany-based VW, 9.3 million by GM and 9.75 million by Japanese competitor Toyota Motor Corp. (7203), according to Bloomberg Industries data. Marchionne estimated in June that a merged Fiat and Chrysler will rank seventh in global deliveries.
Fiat already relies on Chrysler to sustain profit amid losses in Europe, where the car market has fallen to a two-decade low. Group net income, including minority holdings, totaled 1.41 billion euros in 2012. Without Chrysler, Fiat would have posted a 1.04 billion-euro loss.
Providing Technology
Fiat started accumulating Chrysler stock in June 2009 as part of a government and labor-union bailout of the U.S. carmaker, which was losing as much as $100 million a day at the time. Rather than paying cash for the initial 20 percent holding and subsequent 15 percent stake, Fiat provided management experience and technology and helped Chrysler meet various performance milestones, such as developing models.
“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,” Fiat Chairman John Elkann said in yesterday’s statement.
Elkann also leads Exor SpA (EXO), the investment company of Fiat’s founding Agnelli family that holds 30 percent of the automaker. Exor stock rose as much as 6.7 percent to 30.85 euros, the highest intraday price since March 2009, and was trading up 4.5 percent at 30.22 euros.
By Tommaso Ebhardt and Mark Clothier Jan 2, 2014 4:45 AM MT
www.bloomberg.com
Fiat SpA (F) secured full ownership of Chrysler Group LLC in a $4.35 billion agreement that will conserve the Italian company’s cash while creating a global carmaker with better scale to take on General Motors Co. (GM)
Fiat rose the most in almost five years in Milan trading after Sergio Marchionne, chief executive officer of Chrysler and its Italian parent, struck an accord to buy a 41.5 percent stake from a United Auto Workers retiree health-care trust. The No. 3 U.S. carmaker will put up most of the funding for the transaction, underscoring the CEO’s reputation as a dealmaker.
“Marchionne did a great job,” Vincenzo Longo, a strategist at IG Group in Milan, said by phone. “Fiat couldn’t get a better deal.”
The agreement limits the amount of money that Turin-based Fiat must spend to take over and merge with Chrysler, which it helped rescue from bankruptcy almost five years ago. That puts the Italian company in a position to gain financial resources from the U.S. unit to help turn around unprofitable European operations. Marchionne has sought since taking the helm at Fiat in 2004 to combine the company with another carmaker to challenge Toyota Motor Corp., GM and Volkswagen AG (VOW) in sales.
Assigning the majority of the transaction to Chrysler is “a bit of a coup and will be seen as a big positive surprise,” said Max Warburton, an analyst at Bernstein Research in Singapore. “The deal successfully secures Fiat’s operational and financial future.”
Stock Jumps
Fiat jumped as much as 16 percent, the biggest intraday gain since April 2009, and was trading up 13 percent at 6.74 euros as of 12:43 p.m., valuing the carmaker at 8.43 billion euros ($11.5 billion). The stock, which is at the highest price since July 2011, climbed 57 percent in 2013.
The Italian manufacturer, which already holds 58.5 percent of Auburn Hills, Michigan-based Chrysler, will pay the trust $1.75 billion in cash when the deal closes, Fiat said yesterday in a statement. Chrysler will contribute $1.9 billion through a special dividend to complete the transaction for the 41.5 percent stake.
In addition, Chrysler agreed to pay the trust $700 million in four annual installments, with the first to be made when the deal closes, which Fiat expects by Jan. 20. The Italian company said the money would come from cash on hand and that a share sale probably won’t be needed.
IPO Scrapped
The trust, structured as a voluntary employee beneficiary association, will end plans for an initial public offering of its Chrysler stock. Fiat and the trust will also drop legal action in Delaware intended to resolve a valuation dispute.
“In the life of every major organization and its people, there are defining moments that go down in the history books,” Marchionne said in the statement. “For Fiat and Chrysler, the agreement just reached with the VEBA is clearly one of those moments.”
Ron Bloom, a Lazard Ltd. vice chairman, advised Fiat on the transaction.
The cost of insuring Fiat’s debt against losses using credit-default swaps fell 37 basis points to 304 basis points, the lowest in almost three years and the biggest decline since March 2012, according to data compiled by Bloomberg. A decline signals an improvement in perceptions of credit quality.
Fiat’s 6.75 percent notes due October 2019 jumped 2.7 cents on the euro to a record 110 cents at 10:16 a.m. in Milan while the carmaker’s 7.75 bonds maturing in October 2016 rose one cent to 112 cents.
Stake Spending
Including earlier purchases of holdings from the U.S. and Canadian governments, Fiat’s spending on Chrysler stakes will total $3.7 billion. That compares with the $36 billion that the then Daimler-Benz AG paid for the U.S. company in 1998.
The DaimlerChrysler combination unraveled in 2007, when Cerberus Capital Management LP bought 80 percent of Chrysler for $7.4 billion. During its nine years of ownership by the Stuttgart, Germany-based maker of Mercedes-Benz luxury cars, Chrysler posted annual profits of as much as $5 billion and losses almost as large.
The Fiat-VEBA agreement’s value is less than some analysts forecast. Banca Akros estimated in December that Marchionne would need to pay $4.5 billion for the trust’s holding.
Marchionne restarted negotiations with the VEBA the week before Christmas, after Fiat’s first proposal in months was initially rejected, people familiar with the matter said at the time. As of Dec. 20, Fiat was seeking to pay about $4.2 billion for the stake, compared with the trust’s demands for at least $5 billion, a person familiar with the talks said.
U.S. Industry
The transaction comes as the U.S. auto industry rebuilds lineups to propel record sales and profits amid management transitions. Detroit-based GM, which gets a new CEO when Mary Barra succeeds Dan Akerson on Jan. 15, brought out 18 new or revamped models in the U.S. in 2013 and plans 14 more this year. Dearborn, Michigan-based Ford Motor Co. plans to introduce 23 vehicles worldwide this year, an onslaught that risks being overshadowed by speculation that CEO Alan Mulally will leave to take the top role at Microsoft Corp.
Chrysler has increased sales for 44 straight months, led by vehicles developed with help from Fiat, including the Dodge Dart and Jeep Cherokee, as well as offerings such as the Fiat 500 city car.
Italian Investment
A merger will allow Fiat to pool funding with Chrysler and tighten cooperation between its Alfa Romeo, Lancia and Maserati brands and the Chrysler, Dodge and Jeep nameplates. Fiat plans to invest as much as 9 billion euros to revive underused Italian factories to stem losses in Europe. That plan depends on Fiat’s access to Chrysler’s $12 billion cash hoard.
The time line for a merger may be outlined as soon as late January, when Fiat’s board meets, said two people familiar with the situation who asked not to be identified because the talks are private.
Chrysler and Fiat together delivered 4 million vehicles worldwide in 2012. That compares with 9.07 million vehicles sold by Wolfsburg, Germany-based VW, 9.3 million by GM and 9.75 million by Japanese competitor Toyota Motor Corp. (7203), according to Bloomberg Industries data. Marchionne estimated in June that a merged Fiat and Chrysler will rank seventh in global deliveries.
Fiat already relies on Chrysler to sustain profit amid losses in Europe, where the car market has fallen to a two-decade low. Group net income, including minority holdings, totaled 1.41 billion euros in 2012. Without Chrysler, Fiat would have posted a 1.04 billion-euro loss.
Providing Technology
Fiat started accumulating Chrysler stock in June 2009 as part of a government and labor-union bailout of the U.S. carmaker, which was losing as much as $100 million a day at the time. Rather than paying cash for the initial 20 percent holding and subsequent 15 percent stake, Fiat provided management experience and technology and helped Chrysler meet various performance milestones, such as developing models.
“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,” Fiat Chairman John Elkann said in yesterday’s statement.
Elkann also leads Exor SpA (EXO), the investment company of Fiat’s founding Agnelli family that holds 30 percent of the automaker. Exor stock rose as much as 6.7 percent to 30.85 euros, the highest intraday price since March 2009, and was trading up 4.5 percent at 30.22 euros.
01-02-2014, 02:43 PM
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Not necessarily. If Marchionne authorizes the corporate stupidity that resulted in the latest Lancias Flavia and Thema, this can cause serious damage to both companies.
I also don't know to which extent his injection of money into Chrysler is to be a long-period one.
I also don't know to which extent his injection of money into Chrysler is to be a long-period one.
01-02-2014, 06:13 PM
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This agreement and arrangement was done to avoid having to an issue an IPO. That would have seriously threatened Fiat's ability to purchase the rest of Chrysler and their relationship, leaving Chrysler without a real parent company and keeping Fiat as a large stakeholder.