Fiat reaches cash deal with UAW affiliate for full ownership of Chrysler

Italian carmaker Fiat SpA said Wednesday it had reached an agreement to buy the remaining shares in Chrysler Group LLC, ending months of tense negotiations and allowing Chief Executive Sergio Marchionne — who has led both automakers since 2009 — to pursue his goal of creating the world's seventh-largest auto group.

Fiat, which already owned 58.5 percent of Chrysler shares, will acquire the remaining 41.5 percent stake from a retiree health care trust affiliated with the United Auto Workers union, which will receive $3.65 billion in cash. Additionally, once the deal closes, Chrysler has committed to giving the trust an additional $700 million.

The deal, which is expected to close on or before Jan. 20, is seen as a victory for Marchionne, who wants to merge Fiat and Chrysler and create a more competitive automaker with a broader global reach.

Kristin Dziczek of the Center for Automotive Research, a Michigan-based nonprofit organization that tracks changes in the industry, told Al Jazeera that the deal helps Fiat add "more balance to (its) portfolio."

Whereas in the past Chrysler was dependent on the North American market, and Fiat was reliant on the European and South American markets, the deal helps Fiat gain even greater access in North America and gives Chrysler the opportunity to have a greater worldwide presence. 

The automotive industry is a "very global business these days," Dziczek said, adding that "you need to be at a certain scale in order to compete." 

Marchionne's goal is to create a new global player in the auto industry with the capital and volume to compete with the likes of Toyota and General Motors.

While Dziczek said that the Fiat-Chrysler partnership would have a lot of "catching up to do" in order to operate on the level of other industry heavyweights, she added that since the 2009 alliance, which was one of the centerpieces of the Obama administration's restructuring of the U.S. auto industry, Fiat has brought a lot more investment into product development at Chrysler. 

The deal sent Fiat's shares to a near two-and-a-half-year high on Thursday, despite doubts over whether the Italian carmaker could use the merger to cut losses in Europe.  

In what was the stock's biggest intraday gain since April 2009, shares in Fiat jumped 16.4 percent by the closing bell in Milan to 6.92 euros following the deal, which aims to combine the two automakers' resources and rejuvenate Fiat's product line-up. 

Chrysler's booming U.S. sales are now a profit center for Fiat. The deal also raises expectations that investments could be channeled into underused Italian plants to launch new models in what analysts expect to be a steadying market from 2014.

However, some analysts expressed caution over Fiat's heavy debt burden, with Citigroup analysts warning that the Italian motor company will become the most indebted mass carmaker in Europe.

Under the deal, Chrysler will contribute $1.9 billion in cash while Fiat will put up $1.75 billion to buy out the trust, which is known as the VEBA, said both companies in separate news releases. The VEBA manages and pays for medical benefits for Chrysler retirees.

Marchionne had been at odds with the UAW trust for more than a year over the value of Chrysler. 

Chrysler will pay $700 million to the VEBA in four equal annual amounts after the deal closes. 

Wire services. Philip J. Victor contributed to this report.