Fiat to acquire remaining equity interests in Chrysler Group LLC for $3.65 billion

Fiat S.p.A. reached an agreement with the VEBA Trust—an independently administered trust to pay health care benefits for Chrysler retirees—under which its wholly owned subsidiary, Fiat North America LLC (FNA), will acquire all of the VEBA Trust’s equity membership interests in Chrysler Group, representing the 41.4616% of Chrysler Group not currently held by FNA. The transaction is expected to close on or before 20 January 2014. In consideration for the sale of its membership interests in Chrysler Group, the VEBA Trust will receive aggregate consideration of US$3,650 million consisting of:

• A special distribution payable by Chrysler Group to its members, in an aggregate amount of approximately US$1,900 million (FNA’s portion of the special distribution will be paid by FNA to the VEBA Trust as part of the purchase consideration).
  In the event that the special distribution from Chrysler Group cannot be paid by the intended closing date, Fiat intends to make payment to the VEBA Trust of the aggregate consideration and thereafter receive the special distribution when it is the 100% owner of Chrysler Group.
• At closing, FNA will pay the remainder of approximately $1,750 million in cash purchase consideration to the VEBA Trust.

Fiat expects to fund the U.S.$1,750 million in cash from available cash on hand. Chrysler Group expects to fund the special distribution from available cash on hand.

Contemporaneously with the above transactions, Chrysler Group and the UAW agreed to a memorandum of understanding under Chrysler Group’s existing collective bargaining agreements to provide for additional contributions by Chrysler Group to the VEBA Trust of an aggregate of US$700 million in four equal annual installments, bringing the total to $4.35 billion.

The initial payment will be made on closing of the transaction with Fiat and additional payments will be payable on each of the next three anniversaries of the initial payment. Chrysler Group expects to fund the initial contribution to the VEBA Trust from available cash on hand.

In consideration for these contributions, the UAW will agree to certain commitments to continue to support the industrial operations at Chrysler Group and the further implementation of the Fiat-Chrysler alliance, including to use best efforts to cooperate in the continued roll-out of Fiat-Chrysler World Class Manufacturing programs, actively participate in benchmarking efforts associated with implementation of these programs across all of Fiat-Chrysler manufacturing sites to ensure objective performance assessments and provide for proper application of WCM principles, and actively assist in the achievement of the Group’s long-term business plan.

As part of the transactions, FNA and the VEBA Trust will agree to dismiss with prejudice the current proceedings before the Delaware Court of Chancery with respect to the interpretation of the call option agreement pursuant to which Fiat has, through FNA, exercised three tranches of a call option to acquire membership interests in Chrysler Group held by the VEBA Trust. All of these membership interests will be acquired by FNA.

Given the funding arrangements for this transaction, Fiat does not envision needing to raise equity capital via a rights issue.

Source: Green Car Congress