* Move will speed merger of Chrysler and Fiat
* Ends year-long dispute between Fiat and UAW health trust
* Fiat paying less than many analysts had expected
* Deal will allow Chrysler to avoid an IPO
By Stephen Jewkes and Deepa Seetharaman
MILAN/DETROIT, Jan 1 Italian carmaker Fiat SpA
struck a $4.35 billion deal to gain full control of
Chrysler Group LLC, ending more than a year of tense talks that
have obstructed Chief Executive Sergio Marchionne's efforts to
combine the two automakers' resources.
The agreement, announced on Wednesday, cements Marchionne's
reputation as the industry's consummate dealmaker about a decade
after he took the helm of Fiat as a car business newcomer,
analysts and bankers said.
But it remains to be seen whether a merger will be enough to
cut Fiat's losses in Europe. Marchionne's plan to shore up Fiat
depends on the ability to share technology, cash and dealer
networks with Chrysler, the No. 3 U.S. automaker.
"This is an increasingly American company now, because in
Europe, and especially in Italy, the business conditions remain
difficult," said Andrea Giuricin, transport analyst at Milan's
Bicocca University. "Fiat has already lost many of its market
positions in Europe and it won't be easy to recover that."
Fiat will acquire the 41.46 percent stake in Chrysler it did
not already own from a retiree healthcare trust affiliated with
the United Auto Workers union. The trust, known as a voluntary
employee beneficiary association or VEBA, will receive $3.65
billion in cash for the stake, $1.9 billion of which will come
from Chrysler and $1.75 billion from Fiat. After the deal
closes, Chrysler has committed to giving the UAW trust another
$700 million over three years.
The deal is expected to close on or before Jan 20. Fiat said
that because of how the deal is structured it will not need to
make any capital increase through a rights issue.
The VEBA's payout is less rich than some analysts expected.
The sale of the UAW trust's stake values the No. 3 U.S.
automaker at less than $9 billion. When factoring in the
additional $700 million, Chrysler is worth $10.5 billion.
"We thought they were going to have to pay a lot more than
that," a London-based analyst at a major investment bank said.
"The market's going to love this - Marchionne's done it again.
He's brought in a deal that looks like a cracking one on the
face of it and he doesn't need to do a capital increase."
Marchionne, who has run both automakers since Chrysler's
2009 U.S. government-funded bankruptcy restructuring, aims to
merge Fiat and Chrysler into the world's seventh-largest auto
But he has been at odds over the U.S. automaker's worth with
the trust, which was pushing for a payout of more than $5
billion. In September, the trust exercised an option enshrined
in bankruptcy documents to force Chrysler to file for an initial
Wednesday's deal will allow Chrysler to avoid an IPO.
In a statement, Marchionne called the buyout a defining
moment for the two companies.
"The unified ownership structure will now allow us to fully
execute our vision of creating a global automaker," he said.
The Chrysler buyout talks have been closely watched by debt
and equity investors as Fiat's long-term plan to cut losses in
Europe depends on its ability to deepen ties with Chrysler.
Chrysler is now a profit center for Fiat, but the two
companies currently are forced to manage their finances
separately. A full merger will make it easier - but not
automatic - to combine the cash pools of the two companies,
giving Fiat more funds to expand its product lineup.
The UAW trust was created in 2007 as a way for General
Motors Co, Ford Motor Co and Chrysler to offload
their obligations to pay retiree healthcare benefits.
Medical benefits for GM, Ford and Chrysler retirees are
handled in separate accounts and each account was initially to
be funded with cash. But during the 2009 financial crisis, the
VEBA agreed to accept stakes in GM and Chrysler in lieu of cash.