Fiat's Marchionne Strikes Deal to Control Chrysler

Strategic Insights -

Sergio Marchionne's relentless efforts to merge Fiat and Chrysler culminated in a deal announced on New Year's Day, giving Fiat full control of the No. 3 U.S. carmaker. The $4.35-billion USD agreement marks a "historic moment for both Fiat and Chrysler," as Marchionne stated in a joint letter to employees. This deal allows Fiat to better compete with General Motors and Volkswagen, creating a global automaker among the leaders in the sector.

Key Takeaways:

  • Sergio Marchionne's five-year effort to merge Fiat and Chrysler resulted in a deal to buy the 41.5% stake in Chrysler held by the UAW trust for $4.35 billion USD.
  • The agreement will give Fiat full control of Chrysler, allowing it to better compete with General Motors and Volkswagen.
  • The deal was struck on December 28 in Vero Beach, Florida, during a meeting between Marchionne and the UAW trust.
  • Chrysler will pick up much of the tab for the deal, protecting Fiat's cash reserves and pushing up the Italian company's stock.
  • The agreement will allow Marchionne to pool Chrysler's cash with Fiat's and better integrate the Fiat, Alfa Romeo, and Maserati brands with Chrysler, Jeep, and Dodge.
  • The deal will mark a significant milestone in Marchionne's mission to resurrect the American manufacturer after its 2009 bankruptcy.
  • Over 50% of the upfront cash for the deal will come from Chrysler, a surprising aspect of the agreement.
  • Max Warburton, an analyst with Bernstein Research in Singapore, noted that Marchionne clearly spent his Christmas holiday working harder than anyone else.

Statistics:

  • The deal is worth $4.35 billion USD.
  • Fiat held a 58.5% stake in Chrysler, leaving the trust's stake as the only remaining piece of the pie.
  • Chrysler will bear the cost of paying the UAW trust for the 41.5% stake.
  • Fiat's cash reserves will be protected by Chrysler's contribution to the deal.
  • The deal will push up Fiat's stock as a result of Chrysler's contribution.

Sources:

  • Bloomberg News
  • Sergio Marchionne's joint letter to employees with Fiat chair John Elkann
  • Max Warburton, analyst with Bernstein Research in Singapore