It was announced yesterday that Fiat, which owns 58.54% of Chrysler, will pay $3.65 billion to the UAW’s medical benefits trust for retirees to take complete ownership over the brand. The arrangement comes more than four and a half years after the Obama administration enlisted the help of Fiat to keep Chrysler afloat as part of a bankruptcy proceeding.
In an email to Chrysler Group Employees regarding the Voluntary Employees Beneficiary Association (VEBA) trust, the company explained, “After a protracted negotiation with the VEBA, we have reached an agreement that, through the acquisition by Fiat of a 100% equity interest in Chrysler, enables us to complete the union between the two groups in both financial and technical terms. In reality, this extraordinary union already existed.”
Early Thursday, Fiat’s stock was up nearly 13% to €6.70, which is the highest they’ve been since July 2011.
As part of the deal, Chrysler will contribute $700 million to the benefits trust throughout a span of four years. The United Auto Workers Union (UAW) stands behind the plans to roll out vehicles and has agreed to drop court proceedings in Delaware over options exercised by Fiat’s overtaking of Chrysler.
"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," said Sergio Marchionne, CEO of Fiat and Chrysler.
An initial public offering of Chrysler stock – which was scheduled to take place during the first three months of 2014 – can be avoided due to the takeover. Previously, Fiat was to offer the shares held by the UAW trust had it not been able to repurchase said shares.
After Fiat took ownership of Chrysler, profitability was resumed for 2011 and shares have steadily improved. Sales figures show that for the past 45 months, Chrysler has seen year-over-year sales gains. December 2013 showed the best December sales in six years, and full-year sales are up 9%, meaning Chrysler has seen the strongest annual sales since 2007.
The United States government held a stake in Chrysler when it emerged from bankruptcy as compensation for the federal bailout it received, but those shares were sold back to the automaker in 2011 at a loss.