USA - FIAT agrees terms with UAW to take control of Chrysler Group

FIAT S.p.A. (“FIAT”) today announced an agreement with the VEBA Trust[1], 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 LLC (“Chrysler Group”), representing the 41.4616% of Chrysler Group not currently held by FNA.  The transaction is expected to close on or before January 20, 2014.

In consideration for the sale of its membership interests in Chrysler Group, the VEBA Trust will receive aggregate consideration of U.S. $3,650 million consisting of:

• a special distribution payable by Chrysler Group to its members, in an aggregate amount of approximately U.S.$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)[2]; and
• at closing, FNA will pay the remainder of approximately U.S.$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 transactions described above, Chrysler Group and the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (the “UAW”) have 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 U.S. $700 million in four equal annual installments.  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.

“I have been looking forward to this day from the very moment that we were chosen to assist in the rebuilding of a vibrant Chrysler back in 2009,” said John Elkann, Chairman of FIAT. “The work, commitment and achievement I have witnessed from Chrysler over the past four and a half years is nothing short of exceptional, and I take this opportunity to officially welcome each and every one of the people in the Chrysler organisation to the integrated FIAT-Chrysler world.”

Sergio Marchionne, Chief Executive of FIAT and Chairman and CEO of Chrysler Group, had this to say: “In the life of every major organisation and its people, there are defining moments that go down in the history books. For FIAT and Chrysler, the agreement just reached with the VEBA is clearly one of those moments. I will be forever grateful to the leadership team for the support and unwavering dedication shown to the integration project that today has taken its final shape. The unified ownership structure will now allow us to fully execute our vision of creating a global automaker that is truly unique in terms of mix of experience, perspective and know-how, a solid and open organisation that will ensure all employees a challenging and rewarding environment.”

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 in connection with the transactions described above.

Given the funding arrangements for this transaction, it is not envisioned that FIAT will require equity capital to be raised via a rights issue.

[1] The UAW Retiree Medical Benefits Trust, a Voluntary Employees’ Beneficiary Association, is an independently administered trust established to pay health care benefits for retirees from Chrysler.

[2] In the event that the special distribution from Chrysler Group cannot be paid by the intended closing date (January 20, 2014 or earlier) 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.

BREAKING NEWS - China's DONGFENG to buy 30% OF PSA

China's Dongfeng Motor plans to buy a 30 percent stake in PSA/Peugeot-Citroen for 10 billion yuan ($1.63 billion), a report said.

PSA declined to comment on the report, saying only that it is examining new industrial and commercial development projects with different partners, "including the financial implications that would accompany them."

"None of these projects has reached maturity at this stage," PSA said today.

China Business News reported on Tuesday that Dongfeng plans to buy a 30 percent stake in PSA for 10 billion yuan, citing an unidentified Dongfeng official.

An investment from Dongfeng would help PSA to shore up its finances and aid the automaker's efforts to expand outside Europe where the auto market is set to sink for a sixth straight year.

Florent Couvreur, an analyst at CM-CIC Securities, said PSA needs cash. "The two main questions are: how much do they need and where will they find the money? I'm betting they need about 2 billion euros to face their debt obligations in 2014," he said.

Industrial cooperation

PSA and Dongfeng already operate three assembly plants together in China and the two automakers said last month that they are talking about deepening their partnership. Dongfeng said the company is doing "preliminary research" on a PSA investment.

PSA CEO Philippe Varin said in September that he was examining all options to deepen the Dongfeng partnership, with a focus first on industrial cooperation before any financial links.

PSA reported a first-half operating loss in its automotive unit of 510 million euros. The automaker is cutting 11,200 French jobs and closing a factory outside Paris to reduce spending. Varin has pledged to reduce the manufacturer's cash-consumption rate by 50 percent in 2013 after burning through 3 billion euros last year.

Potential hurdles

PSA is negotiating with unions to reduce overtime pay and freeze salaries, in exchange for increased French production and investments over the next three years, to lower labor costs. Any share sale to an outside investor is contingent on the success of those talks, Christian Lafaye, head of the FO union at PSA, said.

A stake purchase of 30 percent would also raise legal questions as well as potential hurdles with the two largest investors, the Peugeot family and General Motors Co.

Under French law, anyone buying a 30 percent stake or more in a listed company must make a tender offer on all the remaining shares, Florence Gaubert, a spokesman for French markets regulator AMF, said today.

A stake sale could lead the Peugeot family, which currently has 25.5 percent of the shares, to lose control of the French company.

PSA investors voted in April to give management the option of issuing new shares in the company, or securities convertible to stock, worth as much as 50 percent of the capital as of March 12, 2013. Current owners have a pre-emptive right to purchase shares in any increase exceeding 20 percent.

GM 'not worried'

General Motors is PSA's second-largest shareholder behind the Peugeot family with a 7 percent stake. Last month, GM Vice Chairman Steve Girsky said GM's partnership with PSA would survive even if Dongfeng takes a stake in the French automaker. The tie-up for joint manufacturing, purchasing and vehicle development is a key part of GM's plans to fix its ailing European operations.

GM has the option to terminate the alliance in the event of a change in control of the French manufacturer, according to PSA's annual regulatory filings.

PSA's stock has more than doubled this year, valuing the manufacturer at 4.4 billion euros ($5.95 billion).

REPORT HERE