Fiat SpA to get full control of Chrysler

Fiat SpA announced yesterday that it would get full control of Chrysler Group LLC after finalizing a deal estimated to 4.35 billion dollars. The deal is expected to give both auto companies a chance for consolidation.

The deal also assumes a value of over 10 billion dollars for Chrysler, which is a value within the 9 billion dollars to 12 billion dollars valuation that a proposed initial public offering had been considered by banks. A person familiar with the issue revealed that now the initial public offering is expected to be called off.

Sergio Marchionne, who is the Chief Executive Officer of both companies is considered the one responsible for the agreement by some analysts. The total price of the 41.5% in Chrysler that Fiat did not own turned out to be lower than the initially predicted one. Calling off an initial public offering gives the CEO Marchionne the opportunity to do what necessary in order to consolidate the companies engineering and manufacturing operations and make them more stable. The European operations of Fiat will also be given a chance to be repaired and worked on, because the company has suffered a long slump in sales there.

Mr. Marchionne made a written statement on Wednesday, saying: “The unified ownership structure will now allow us to fully execute our vision of creating a global auto maker.” Mr. Marchionne hopes that the merge of the two companies would help him create a single, global auto maker, which is believed to rank as the worlds seventh largest one thanks to the combined sales estimated to six million vehicles. However, the fact that the global auto industry is dominated by Fiats larger and affluent competitors such as Volkswagen AG, Toyota Motor Corp., General Motors Co. and Ford Motor Co. should not be underestimated, because it is expected to bring some new challenges to the company even after the merger is finalized.

Analysts believe that the deal in question should give a lift to Fiat shares. As the Wall Street Journal reported yesterday, Fiat had been expected by investors to pay up to 5 billion dollars in order to take full control of Chrysler. The analysts working for Italys Banca IMI made some calculations and claim that any price less than 4.4 billion dollars would add almost 15% of implicit value to Fiats shares.

According to Bloomberg, the current share price of Fiat SpA is 12.92% up, and its one-year return rate is 72.88% up.