In a move to circumvent an initial public offering of the remaining stake of Chrysler Group (FIATY.PK) that was not formerly held by Fiat SpA, the Italian automaker has announced a $4.35 billion dollar deal to purchase the outstanding 41.46 percent of Chrysler from a retiree health care trust that is bonded to the United Auto Workers union.
Fiat shares leapt at the news, though there are fears that Fiat’s full control of Chrysler will only add to what is already a fairly substantial debt burden despite the relatively low price that Fiat CEO Sergio Marchionne was able to score, Reuters reports. ”They paid less than the market had expected and there will be no capital increase to fund this, so no wonder the stock is flying,” the news service quoted a Milan-based trader as saying.
Under the terms of the deal, the trust will receive $3.65 billion in cash for its portion, with $1.9 billion being shelled out by Chrysler and $1.75 billion from Fiat. Upon completion of the deal, Chrysler will further commit itself to giving the trust an additional $700 million over three years. That all sounds well and good, though Citigroup analysts noted that Fiat’s debt would swell to form the highest of any European motor manufacturer, Reuters reports.