Investors in Fiat S.p.A. (FIATY) reacted with great enthusiasm to the fact that the company gained full control of Chrysler Group LLC. Shares rose some 13% halfway during the European trading session in Milan.
Years after Fiat came to rescue Chrysler, today's situation has largely been reverted with Chrysler being the star performer compared to the struggling operations of the Italian auto maker. Despite Thursday's jump, shares still have a lot more potential going forward, making it a top pick for 2014.
Finally A Deal Has Been Struck After Talks For Over A Year
For $4.35 billion, Fiat will purchase the remaining stake in Chrysler Group which it did not already own. CEO Sergio Marchionne has been busy for over a year to combine both companies.
Marchionne has been very pleased with the deal commenting, "The unified ownership structure will now allow us to fully execute our vision of creating a global automaker."
The price tag for the remainder 41.46% stake in the business being bought from the retiree healthcare trust affiliated with the United Auto Workers union implies that Chrysler is valued around $10.5 billion. The UAW fund will receive $3.65 billion in cash upfront, roughly split in half between a Chrysler and Fiat payment. Chrysler will pay another $700 million in the coming three years to the UAW.
Given the structure of the deal, with a lot of cash being paid by Chrysler itself and a portion being deferred into the future, Fiat will not need to raise capital through a right issue.
Implications For Fiat
Fiat continues to lose a lot of money in Europe, yet the merger could bring technology, cash and dealer networks from Chrysler which could improve the performance in Europe. Given the low upfront capital investment, the fact that no capital raise is required to finance the
