Fiat, U.S. Set Chrysler Deal
Italian auto maker Fiat SpA has an agreement to buy the U.S. Treasury's remaining 6 percent stake in Chrysler Group LLC, a move that would bring an end to the U.S. government's involvement in the Auburn Hills, Mich., auto maker.
Fiat will pay the Treasury $500 million for its 98,461 shares of Chrysler and another $75 million for the right to purchase all of the 45.7 percent stake owned by the United Auto Workers union's health-care trust fund, The Wall Street Journal reported.
The Treasury will retain 80 percent of the $75 million purchase right and share the remaining 20 percent with the Canadian government. In all, the Treasury will walk away with a total of $560 million in the deal, which is expected to close within the next 30 to 60 days following antitrust reviews.
President Barack Obama is expected to announce the deal during a planned visit Friday to a Chrysler automobile assembly plant in Toledo, Ohio.
"As Treasury exits its investment in Chrysler, it's clear that President Obama's decision to stand behind and restructure this company was the right one," Treasury Secretary Tim Geithner said in a statement Thursday. "Today, America's automakers are mounting one of the most improbable turnarounds in recent history—creating new jobs and making new investments in communities across our country."
Acquiring the Treasury's shares lifts Fiat's stake in Chrysler to 52 percent while formally cutting the U.S. government's final ties to the auto maker.
The additional right to move on the UAW health trust fund's stake eliminates the need for Chrysler to conduct an initial public offering of shares. It is unknown at this point the value of the UAW health trust's stake. Fiat will have to negotiate a purchase price with the trust fund, known as a voluntary employees beneficiary association.
The VEBA, which was created in 2009 to fund retiree medical benefits for 125,000 union members, retirees and their spouses, is interested in converting its shares into money as soon as possible so that it can then reinvest that money to generate a return to continue covering health-care costs. A sale to Fiat means the VEBA won't have to wait for an IPO to divest its shares, which couldn't take place until early 2012. The VEBA originally held a 55 percent stake in Chrysler. The stake has diluted as Fiat has purchased shares. Fiat now owns 46 percent of Chrysler.
The VEBA was designed so that the union could handle the administration of health-care costs from a fund rather than requiring the company to continue to pay these costs every year.
Treasury was given the right to repurchase the trust fund's ownership stake under Chrysler's 2009 bankruptcy reorganization.
Sergio Marchionne, who serves as chief executive of both Fiat and Chrysler, and Treasury officials have been working to get a deal done so Obama could make the official announcement Friday.
Obama will use the visit to highlight the recovering automotive industry which his administration helped save in 2009 when it provided bailout funding and ushered both Chrysler and General Motors Co. out of bankruptcy court.
The Chrysler news could also serve as a bright spot Friday amid a gloomy unemployment figure announcement. The data are expected to show companies hired fewer workers in May compared with April.
The outcome of Fiat's talks with the Treasury could have implications for Canada, which owns a 1.7 percent stake in Chrysler. Canadian government officials have said during the past week they are open to selling the stake to Fiat.
The Canadian and U.S. governments took stakes in Chrysler after providing the auto maker $7.6 billion in bankruptcy loans. Chrysler formally repaid those loans last week. A spokeswoman for Canadian Minister of Finance Jim Flaherty said no decision has been reached on its shares.
The Obama administration is hoping to use the news to make the case that the auto industry bailout was a broad success as part of a broader Democratic effort to turn that into a political advantage, particularly in Midwestern states that were hard hit by the recession and could provide key support for Democrats in 2012 elections.
For Mr. Marchionne, the deal could allow him to skip a Chrysler IPO and move forward with his ambitions to combine Chrysler and Fiat into a single auto maker with a global footprint. On June 10, Chrysler will mark the two-year anniversary since its emergence from bankruptcy protection.
Treasury also hopes to sell more of its remaining 26.5 percent stake in GM this August or September in a bid to cut ties with major auto industry participants, according to people familiar with the plans. While most of the government's money flowed to GM and Chrysler as they underwent bankruptcy reorganizations, auto finance companies and parts suppliers also received aid.
The U.S. would lose more than $10 billion on the GM rescue if it were to sell the shares at the current price, which has fallen below last fall's $33 IPO price. GM shares were off 2 percent, or 66 cents, at $29.57 in 4 p.m. New York Stock Exchange trading Thursday.
White House adviser Ron Bloom said Wednesday the administration hasn't settled on a price or date for selling its remaining GM shares, but he said the administration may accept a loss.
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