• by Thom Forbes , January 2, 2014

Fiat is buying the 41.46% of Chrysler it did not already own from the Voluntary Employee Beneficiary Association (VEBA) affiliated with the United Auto Workers union for $3.65 billion in cash. The deal, which is expected to close later this month, follows protracted negotiations and avoids an initial public offering. 

The merger will allow Fiat to pool cash with Chrysler and tighten cooperation between its Alfa Romeo, Lancia and Maserati brands and Chrysler, Dodge and Jeep, as Automotive News points out in a widely sourced story. Or, as Time’s Bill Saporito writes in his lede: “America just got itself a new Italian automobile company: Chrysler.”

“In the life of every major organization and its people, there are defining moments that go down in the history books,” said Sergio Marchionne, CEO of Fiat and Chairman and CEO of Chrysler Group in the New Year’s Day announcement. “For Fiat and Chrysler, the agreement just reached with the VEBA is clearly one of those moments…. The unified ownership structure will now allow us to fully execute our vision of creating a global automaker.”

Full ownership of Chrysler will combine two regional manufacturers into a global player with better scale to challenge General Motors and Volkswagen, observeBloomberg’s Businessweek’s Tommaso Ebhardt and Mark Clothier. They also write that Marchionne, “who has sought a merger since taking the helm at the Italian company in 2004,” estimated in June that the combo will be the world’s seventh-largest carmaker.

“Marchionne did a stroke of genius in the New Year's Day," Giuseppe Berta, a professor at Bocconi University in Milan who has written several books on the carmaker, said in a widely published quote with apparent origins in their story. “He showed he's a real Maestro.” 

Marchionne has run both automakers since Chrysler's 2009 U.S. government-funded bankruptcy restructuring, point out Reuters’ Deepa Seetharaman and Stephen Jewkes. “But he has been at odds over the U.S. automaker's worth with the [VEBA] trust, which was pushing for a payout of more than $5 billion. In September, the trust exercised an option enshrined in bankruptcy documents to force Chrysler to file for an initial public offering.”

The deal “will reduce Fiat’s reliance on the struggling European car market and enhance its ability to exploit booming U.S. car sales,” observe Robert Wright in New York and Henry Foy in Financial Times. “Chrysler’s Jeep sports utility vehicles and Ram pick-up trucks have been among the biggest beneficiaries of the recovery in sales since the financial crisis” hit in 2008, pushing Chrysler into bankruptcy the following year.

“Marchionne in the spring is expected to present the latest in a series of strategic plans for Fiat, the heart of which will how he plans to roll out Alfa Romeo as a global brand,” Christina Rogers reports in the Wall Street Journal. “He repeatedly has delayed the introduction, including the brand's return to the U.S. Alfa Romeo is seen by analysts as one of the group's brands with the greatest potential to help revive Fiat's fortunes.”

The companies will now operate with a single set of financial statements, Jack R. Nerad, the executive editorial director at Kelley Blue Book, tells the New York Times’ Jaclyn Trop. “Their ability to move capital around is going to be a big advantage for them,” he said. 

Nerad also pointed out that the merger gives the newly unified company geographic diversity. “Often, one global market will be up while another’s down,” he said. “If you’re stuck in a single region, it can be a disadvantage to compete against global players.”

Sources told Bloomberg’s Ebhardt last month that Fiat would invest as much as $12.3 billion on new models to end European losses in three years and revive production in Italy.  

“In addition to bolstering the upscale Maserati and Alfa Romeo marques with new ‘Made in Italy’ models, the carmaker will focus the Fiat line on variants of the trendy 500 subcompact and the budget-oriented Panda small car, ditching a former best seller, according to two people privy to the discussions who asked to remain anonymous.

“It’s a brave and historic move to abandon your roots,” Roberto Verganti, a management professor at Milan Polytechnic, told Ebhardt. “Going upscale with cool, high-margin 500 and Alfa models is the only possible strategy to continue building cars in Italy.”

The fully implemented merger also “allows Fiat to complete the implementation of its world-class manufacturing programs across Chrysler’s operations,” points out Time’s Saporito. “UAW workers build the Dodge Dart, for instance, which is based on a Fiat-owned Alfa Romeo platform. The company wants to be able to benchmark cars like the Dart with similar products worldwide to continually improve quality and efficiency.”

There’s no word yet if Ron Burgundy will be taking Italian lessons or expanding his pitch to Fiats.