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In a move aimed at convincing investors and industry experts that it's on a path to financial success, Fiat S.p.A. (OTCMKTS: FIATY) announced on New Year's day it will take full ownership of Chrysler.
The news sent Fiat stock soaring some 15% when trading resumed today (Thursday).
The Italian automaker will buy the 41.5% position held by a United Auto Workers union trust for $1.75 billion (roughly 1.35 billion euros) in cash, plus $1.9 billion in extraordinary dividends. Chrysler has committed to giving the trust an additional $700 million.
The $4.35 billion deal is expected to close by Jan. 20. Analysts say the price paid for the outstanding 41.5% stake is lower than many had expected. Additionally, Fiat will be able to execute the deal without having to raise new equity capital - a plus for shareholders.
Supporters of the deal say it will permit Fiat to more effectively expand, compete, and grow revenue.
"Overall, this looks like a fair deal for the union and a reasonable valuation on Chrysler," Morningstar Inc. analyst Richard Hilgert told The Wall Street Journal.
An even bigger winner in the deal than Fiat stock holders is Chief Executive Officer Sergio Marchionne.
Fiat-Chrysler Deal Good for Marchionne
By fully integrating the two companies, Marchionne aims to create a single, global automaker with collective sales of 6 million vehicles. That would rank Fiat no. 7 on the list of world's largest automakers.
"The unified ownership structure will now allow us to fully execute our vision of creating a global auto market," Marchionne said in a statement. Marchionne called the deal one of life's "defining moments that go down in the history books."
The full combination also allows Marchionne to scrap the highly anticipated Chrysler IPO, planned for early 2014, which would have mired his efforts to attain total control of the lucrative U.S. auto maker.
Marchionne can instead now focus on overhauling Fiat's European operations, a unit that has struggled amid a prolonged sales slump.
Like other automakers, Fiat shares, sales, and revenue moved higher over the last five years. While still operating in the red, the Italian car company narrowed its losses, nearly by half.
But the Italian company, which bought Chrysler out of bankruptcy in 2009, has only had muted success with sales of its signature cars...