Fiat and Chrysler have confirmed that a merger deal has been reached. Details of the deal were put out in a press release by the two automakers and the Wall Street Journal also has a story on the new alliance.
According to the Wall Street Journal, Fiat and Chrysler will enter an alliance in which Fiat will take an initial 35 percent stake in the troubled Detroit automaker, with an option to raise its ownership stake to 55 percent at a later date.
The terms of the deal do not require Fiat to pay any cash to Chrysler right away. Instead, Fiat will receive equity in Chrysler for investments it will make in retooling a Chrysler plant to produce Fiat models for the US market. Fiat may reach its intended 35 percent stake by the middle of the year.
It may be that Fiat has also simultaneously announced a return to the North American market or those vehicles will be badged under the Chrysler banner.
A merger of the two will extend the reach of each automaker, both of whom are relatively small compared to global giants such as GM, Toyota and Renault-Nissan.
Chrysler sold about 2 million vehicles last year, most of them in the US market. Fiat sold 2.5 million cars in 2008, mostly in Europe and Latin-America.
See press release below for official Chrysler statement.
Fiat Group, Chrysler and Cerberus Announce Plans for a Global Strategic Alliance
Fiat S.p.A., Chrysler LLC (Chrysler) and Cerberus Capital Management L.P., the private investment majority owner of Chrysler LLC, announced today they have signed a non-binding term sheet to establish a global strategic alliance.
The alliance, to be a key element of Chrysler's viability plan, would provide Chrysler with access to competitive, fuel-efficient vehicle platforms, powertrain, and components to be produced at Chrysler manufacturing sites. Fiat would also provide distribution capabilities in key growth markets, as well as substantial cost savings opportunities. In addition, Fiat would provide management services supporting Chrysler's submission of a viability plan to the U.S. Treasury as required. Fiat has been very successful in executing its own restructuring over the past several years. The alliance would also allow Fiat Group and Chrysler to take advantage of each other's distribution networks and to optimize fully their respective manufacturing footprint and global supplier base.
The proposed alliance would be consistent with the terms and conditions of the U.S. Treasury financing to Chrysler. Per the U.S. Treasury loan agreement, each constituent will be asked to contribute to Chrysler's restructuring effort including: lenders, employees, the UAW, dealers, suppliers and Chrysler Financial. Such steps would greatly contribute to Chrysler's long term viability plan. Completion of the alliance is subject to due diligence and regulatory approvals, including the U.S. Treasury.
As a consideration for Fiat Group's contribution to the alliance of strategic assets, to include: product and platform sharing, including city and compact segment vehicles, to expand Chrysler's current product portfolio; technology sharing, including fuel efficient and environmentally friendly powertrain technologies; and access to additional markets, including distribution for Chrysler vehicles in markets outside of North America, Fiat would receive an initial 35 percent equity interest in Chrysler. The alliance does not contemplate that Fiat would make a cash investment in Chrysler or commit to funding Chrysler in the future.
"This initiative represents a key milestone in the rapidly changing landscape of the automotive sector and confirms Fiat and Chrysler commitment and determination to continue to play a significant role in this global process. The agreement will offer both companies opportunities to gain access to most relevant automotive markets with innovative and environmentally friendly product offering, a field in which Fiat is a recognized world leader while benefitting from additional cost synergies. The deal follows a number of targeted alliances and partnerships signed by the Fiat Group with leading carmakers and automotive suppliers over the last five years aimed at supporting the growth and volume aspirations of the partners involved," the CEO of Fiat Group, Sergio Marchionne said.
"A Chrysler/Fiat partnership is a great fit as it creates the potential for a powerful, new global competitor, offering Chrysler a number of strategic benefits, including access to products that compliment our current portfolio; a distribution network outside North America; and cost savings in design, engineering, manufacturing, purchasing and sales and marketing," said Bob Nardelli, Chairman and CEO of Chrysler LLC. "This transaction will enable Chrysler to offer a broader competitive line-up of vehicles for our dealers and customers that meet emissions and fuel efficiency standards, while adhering to conditions of the Government Loan. The partnership would also provide a return on investment for the American taxpayer by securing the long-term viability of Chrysler brands in the marketplace, sustaining future product and technology development for our country and building renewed consumer confidence, while preserving American jobs."
"This is great news for the UAW Chrysler team and we look forward to supporting and working with them to ensure Chrysler's long term viability," said Ron Gettelfinger, President United Auto Workers (UAW).
"We're on board with this important strategic initiative as it will help preserve the long-term viability of our great company, its brands and of course UAW-Chrysler jobs," said General Holiefield, Vice President, United Auto Workers (UAW).
zorpas
January 20, 2009 2:29 PM
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