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The Italian carmaker announced last recently a deal to buy out a union healthcare plan’s share in Chrysler, one of the US’s three big carmakers. As part of the deal, Chrysler will pay the Veba union pension trust an addition al $700 m in cash over four years, starting from the date of the deal’s completion, which is expected to be on or before 20 January.
The deal will allow Fiat to merge Chrysler’s operations entirely with its own, exploiting necessary economies of scale.
Fiat and Sergio Marchionne, chief executive of both carmakers, had been haggling for months with Veba, which had threatened to take its shares to the public market. The agreement allows Mr Marchionne to avoid an initial public offering of Chrysler, which Fiat was obliged to arrange if the sides were unable to agree on a price.
Mr Marchionne had been eager to avoid an IPO, seeing it as potentially disruptive to his efforts to integrate the two companies’ technologies to improve their profitability. The transaction will reduce Fiat’s reliance on the struggling European car market and enhance its ability to exploit booming US car sales.
Chrysler’s Jeep sports utility vehicles and Ram pick-up trucks have been among the biggest beneficiaries of the recovery in sales since the financial crisis pushed Chrysler and General Motors into government-managed bankruptcy in 2009.
Of the $3.65 bn, $1.9 bn will come from a ‘special distribution’ to Veba. Fiat will pay the remaining $1.75 bn directly to Veba in cash.
(Source: Financial Times)