Fiat has officially taken over Chrysler after a last-minute challenge by a pension fund was brushed aside by the Supreme Court. As expected, Fiat CEO Segio Marchionne has been named CEO of Chrysler Group and Robert Kidder chairman.
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In a statement, the Chrysler and Fiat groups announced this afternoon they had finalised their previously announced global strategic alliance, forming a ‘new’ Chrysler “that has the resources, technology and worldwide distribution network required to compete effectively on a global scale” and would begin operations immediately.
Under terms approved by the US Bankruptcy Court in New York and various regulatory authorities, the company formerly known as Chrysler LLC today formally sold most of its assets, but minus debts and liabilities, to a new company that will operate as Chrysler Group LLC.
Chrysler Group in turn issued to a subsidiary of Fiat a 20% equity interest in the new company. Fiat has also agreed to transfer certain technology, platforms and powertrains to the new Chrysler. Fiat’s equity interest will increase in increments by up to a total of 35% in the event that targets mandated by the agreement are achieved, but cannot obtain a majority stake in Chrysler until all taxpayer funds are repaid.
The United Auto Workers’ Retiree Medical Benefits Trust, a voluntary employees’ beneficiary association trust (VEBA) has been issued a 55% equity interest in Chrysler Group while the US Treasury and the Canadian government have taken 8% and 2%, respectively. These interests reflect the anticipated share dilution as a result of Fiat’s incremental equity assumption once the milestones outlined in the strategic alliance agreement are achieved.
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By GlobalDataFiat will provide technology, platforms and powertrains for small- and medium-sized cars, “allowing the company to offer an expanded product line including environmentally friendly vehicles increasingly in demand by consumers”. Chrysler also expects to benefit from Fiat’s management expertise in business turnaround and access to Fiat’s international distribution network with particular focus on Latin America and Russia.
“This is a very significant day, not only for Chrysler and its dedicated employees, who have persevered through a great deal of uncertainty during the past year, but for the global automotive industry as a whole,” said Marchionne.
“From the very beginning, we have been adamant that this alliance must be a constructive and important step towards solving the problems impacting our industry.
“We intend to build on Chrysler’s culture of innovation and Fiat’s complementary technology and expertise to expand Chrysler’s product portfolio both in North America and overseas. Those Chrysler operations assumed by the new company that were idled during this process have or will soon be back up and running, and work is already underway on developing new environmentally friendly, fuel-efficient, high-quality vehicles that we intend to become Chrysler’s hallmark.”
The new Chrysler will be managed by a nine member board of directors, with three to be appointed by Fiat, four by the US government, one by the Canadian government and one by the UAW trust. The board is expected to name Kidder as its chairman.
As previously announced, Chrysler has entered into an agreement with GMAC Financial Services to provide automotive financing products and services to the company’s North American dealers and customers.
Today’s announcement finally came after the US Supreme Court last night declined to hear a challenge by three Indiana state funds and several consumer groups to the sale of most of Chrysler’s assets to Fiat.
The refusal by the Supreme Court to revisit the matter, after two lower courts approved the sale, removed the uncertainty posed by a decision by Justice Ruth Bader Ginsburg on Monday to halt the deal temporarily pending further review, the New York Times reported.
An order from the court said the Indiana funds “have not carried the burden” of proving that the Supreme Court needed to intervene.
“We are gratified that not a single court that reviewed this matter, including the US Supreme, found any fault whatsoever with the handling of this matter by either Chrysler or the US government,” the Treasury Department said in a statement.
In a statement cited by the newspaper, Richard Mourdock, Indiana’s treasurer, said he was “disappointed” by Tuesday’s order adding, “The future ramifications of the court’s decision on the capital markets remain to be seen.”
Chrysler also won an additional concession on Tuesday, when a federal judge approved its request to terminate 789 dealer franchises immediately, a move the company said would significantly cut costs.
The decision, by Judge Arthur Gonzalez of the United States Bankruptcy Court in Lower Manhattan, overruled objections by scores of dealers, according to the New York Times.
Reuters reported that Fiat’s shares had risen over 3% this morning after the Supreme Court removed the final obstacle to the deal.
Erich Merkle, an independent auto analyst based in Grand Rapids, Michigan, told the news agency the decision was also good news for General Motors which is using a similar quick-sale strategy to facilitate its government-backed trip through bankruptcy.
