Fiat and Chrysler have taken a major step towards forming a global auto giant with a $1.3-billion (R8.8 billion) deal increasing Fiat's stake in the US firm to 46 percent.
Fiat said the €889 million deal to boost its stake in Chrysler from 30 percent would be completed during the second quarter and would include loans from the US and Canadian governments being “fully repaid”.
Fiat took over management of Chrysler after the iconic US company emerged from bankruptcy in 2009 following an implosion of the auto sector in the United States triggered by a plunge in car sales during the global economic crisis.
Fiat chief executive Sergio Marchionne, who also heads up Chrysler, said: “This is a fundamental step toward completion of the momentous integration of Fiat and Chrysler initiated less than two years ago.”
The deal “will result in the creation of a global automaker,” he said.
Fiat also said on Thursday it expected to increase its stake by a further five percent to 51 percent “before year end”.
Investors welcomed the news, with Fiat's share price on the Milan stock exchange gaining 1.98 percent to €6.705 (R66) in early trading.
Chrysler confirmed the deal, saying that “Fiat has agreed with Chrysler Group's other members that it will exercise its option” to increase the stake.
The other shareholders are the US and Canadian governments and the pension fund of the AUW union based in Detroit at the heart of the US auto industry.
At the end of 2010, Chrysler owed the US government $5.8 billion (R39 billion) and $1.7 billion (R11.4 billion) to the Canadian government and the province of Ontario.
Chrysler is set to raise around €7 billion (R69 billion) in debt on the markets.
Fiat, which announced its first-quarter profits on Wednesday, said it had chosen to “accelerate the pace” of the merger. Analysts said the financial time was right ahead of a planned listing of Chrysler at the end of 2011.
“Fiat, together with Chrysler, will create a stronger automobile group, with a full range of products, present in every market around the world and able to compete with the best,” the Turin-based company said.
Fiat and Chrysler combined have a production volume of about four million vehicles a year, which should be increased to six million by 2014 - putting the combined company among the top auto makers in the world.
Toyota was the world's biggest automaker in 2010 with total sales of 8.418 million vehicles. General Motors produced 8.39 million.
Fiat chairman John Elkann, grandson of Fiat's historic boss Gianni Agnelli, said: “The transaction that we are announcing today represents a historic step for Fiat and Chrysler.”
Fiat began managing Chrysler in June 2009 with a 20-percent stake. - AFP