Fiat takes full ownership of Chrysler, avoids IPO
Fiat, the majority owner Chrysler, will purchase the remainder of the automaker for $3.65 billion, and a previously planned IPO looks to be off for now.
Rain falls on a Fiat logo pictured on a car in Milan, Italy, Thursday, Jan. 2, 2014. Italian automaker Fiat SpA announced that it reached an agreement to acquire the remaining shares of Chrysler for $3.65 billion in payments to a union-controlled trust fund. Fiat already owns 58.5 percent of Chrysler's shares, with the remaining 41.5 percent held by a United Auto Workers union trust fund that pays health care bills for retirees.( AP Photo/Antonio Calanni)
Antonio Calanni/AP/File
Last time we reported on Fiat's attempt to purchase every single share of Chrysler, things had reached an impasse. The entity holding the rest of those shares was VEBA, a healthcare trust associated with the United Autoworkers Union, and VEBA wasn't happy with the money Fiat had offered to close the deal.
And so, majority-owner Fiat filed paperwork for Chrysler's initial public offering, forcing VEBA's hand. See, per the terms of Chrysler's 2009 restructuring, VEBA received a 41.5 percent stake in the automaker, but it could only sell 25 percent of those shares on the open market. The remaining 75 percent had to be sold to Fiat. By filing for an IPO, Fiat introduced an element of uncertainty: sure, VEBA could go along with the IPO and sell its Chrysler shares to the public, but there was no guarantee that VEBA would earn as much as Fiat was offering.
In other words, CEO Sergio Marchionne assumed that VEBA would ultimately opt for the bird in the hand (i.e. Fiat's offer to purchase the Chrysler shares) rather than the two in the bush (i.e. selling its Chrysler shares on the open market). And now, it appears that the gamble has paid off.
A NEW DAY FOR CHRYSLER, FIAT, AND THE UAW
According to a press release, Fiat will purchase the outstanding Chrysler shares from VEBA for a total of $3.65 billion. Of that sum, $1.9 billion will come from Chrysler, and $1.75 billion will come from Fiat.
But that's not all. To sweeten the deal, Chrysler will make an additional $700 million contribution to VEBA, paid in four equal annual installments of $175 million. And last but not least, Fiat and VEBA have agreed to nix a pending lawsuit over the VEBA-held shares.
Fiat and VEBA are expected to close on the deal around January 20.
Although there's no official mention of the IPO from either Fiat or Chrysler, it's safe to assume that it's off, for now. Fiat and Marchionne have gotten what they wanted: full-ownership of Chrysler and its current river of cash, which will help stabilize Fiat until Europe's economy recovers. (Well, hopefully.)
That's not to say that Chrysler won't eventually go public -- chances are, the automaker will need an infusion of funds down the line -- but for now, Marchionne & Co. can start the new year off resolved to breathe a bit easier.
For more on this story, check out our colleagues at Motor Authority.