Also from Fiat’s official announcement today (via Financial Post)
The transaction will be implemented through an expedited sale of substantially all the assets of Chrysler to a NewCo pursuant to certain provisions of the US Bankruptcy Code. After intense consultations with the US Treasury and all the other constituencies, including, the government of Canada, the United Auto Workers (UAW) and the Canadian Auto Workers (CAW), Chrysler elected such route as the most effective to restructure its debt. As a consequence, today Chrysler will request the bankruptcy court in New York to approve the sale of Chrysler’s business to a NewCo. Subject to the approval of the regulatory authorities, if the Court will approve the Transaction it will require the parties to complete the transaction as soon as possible.
Pending this approval, the current Chrysler will continue its normal business operations and the US Treasury and the Canadian government will provide the company with financing in order to allow the performance of all its obligations towards the employees and to fund its on-going needs.
From the beginning of May Chrysler will benefit of new wholesale financing arrangements entered into with GMAC which will also offer retail financing.
At closing of the Transaction, NewCo will assume the corporate name of Chrysler and become the owner of substantially all the Chrysler’s business without certain debts and liabilities.
At closing NewCo will issue in favor of Fiat an equity interest equal to 20% (by vote and value) on a fully diluted basis and Fiat will enter into certain industrial agreements with Chrysler.
Similarly, at closing the Voluntary Employee Benefit Association (VEBA) will be issued an equity interest equal to approximately 55% on a fully diluted basis of Chrysler. Such equity interest will be administered by the U.S. Treasury. UST and the Canadian Government will collectively hold the remaining 10% equity interest (on a fully diluted basis).
The new Chrysler will also benefit from the recently agreed new collective bargaining agreements with UAW and CAW and of a facility of the U.S. Treasury of approximately US $ 6.5 bn.
The new Chrysler will be managed by a board of directors consisting of nine directors: three directors will be appointed by Fiat. One of Fiat’s appointees must satisfy the criteria for independence under the New York Stock Exchange listing rules. VEBA and the Government of Canada will have the right to appoint one Director respectively. U.S. Treasury will have the right to make the initial appointment of four directors (three of whom must be independent).
Fiat will have right to receive up to an additional 15% equity interest (by vote and value) on a fully diluted basis. This stake can be obtained in three tranches of 5% each subject to the achievement of predetermined targets, in particular, achievement of regulatory approvals to produce the FIRE family of engines in the USA; achievement of sales of Chrysler vehicles outside NAFTA, and achievement of regulatory approval to produce a Chrysler model based on Fiat technology. Upon obtainment of such additional 15% interest, Fiat will also have the right to appoint another director of Chrysler.
In addition, Fiat will be granted an option to acquire an additional 16% shareholding (exercisable from Jan 1, 2013 until June 30, 2016). The price of such incremental equity will be determined in accordance to certain market standards but in any event will not exceed the then Fiat market multiple. This option will not be exercisable while the US Treasury outstanding loan exceeds US$3 billion.
Fiat’s shareholding will be capped at 49% until Chrysler has repaid in full the loan granted by the U.S. Treasury.
So the Canadian and US governments will be responsible for appointing a majority of the board? wow.
Companies plagued by red tape will now be run by the very institutions that invented red tape.
(no offense Canadian friends, I’m referring to the US govt as the source of red tape)
Rod, tell ’em what they’ve won!
55% ownership and only one seat on the board!
So is this an accidental reach-around to the unions when the USG should have started pushing them off the cliff instead, so cars could be made affordably here?
-Or is it just a more stealthy way to scuttle their boat with a debt->equity swap when there is every indicator that Chrysler will just die another day after they are bailed out this time?
hrm…
// Or is it just a more stealthy way to scuttle their boat with a debt->equity swap when there is every indicator that Chrysler will just die another day after they are bailed out this time? //
If only that were true. I fully believe that after this bailout period is over there will be another… and another… and another… the administration will never let that many democrat-voting-union-employees lose their jobs without first spending the country into oblivion.
The more this unfolds the more obvious it is that decisions are being made for political gain and not for the benefit of the country.
“[The VEBA’s 55%] equity interest will be administered by the U.S. Treasury.”
I just wanted to highlight this bit.
So if the 55% stake is only to VEBA, then that basically means the UAW in and of itself does NOT have a stake. Is that correct?
The US Treasury administering the VEBA shareholdings is certainly an interesting twist. This keeps the UAW out of the boardroom. The VEBA is a trust fund which is tasked with providing medical benefits to employees and retirees. Responsibility for providing these benefits starts in January 2010.
You can read a bit more about the VEBA here, though the information is pre-C11:
http://www.uaw.org/contracts/07/chrysler/sal/chry_sal05.php
Off subject, but is the photo of the Lingotto hotel in Turin? The hotel was a Fiat plant and they’ve turned it into a very reasonable hotel.
The hotel has a running track on the roof, it was a test track – famous for the scene in the original (British) “Italian Job” film.
Anyone notice that “Fiat” spelled backwards is “tiaf”??
Amazing!!!
What is going to happen when these small Fiats fail US crash tests? I can see the report now all over the media showing a 500 folding up like an accordion in a crash test photo. It will cost billions more in tax dollars just to reengineer these cars to meet US safety standards.
The Chrysler Fiat shitbath is filled. Are you ready to step in?
@John Horner
In addition to keeping the UAW out of the boardroom, it may also make Treasury more likely to make up for likely shortfalls in the fund. If history is any indicator at all, companies under 50+% government control won’t exactly wow the world with outperformance.
@Samuel L. Bronkowitz
A Michigan sans heavy UAW influence is only a few years away from becomeing a Red State, and the dems know it. Once federal transfer payments drie up, it’s only a matter of time before that state’s unusually skilled and educated workforce decide to vote into power an administration that lets them compete on a more even footing with states further south. My guess is they may take other lake states with them, with the region perhaps swapping electoral colors with an increasingly medicarized Florida.
As I’ve said before, my biggest fear is the administration will try to save face by saddling the transplant makers in the south with federally imposed burdens making the rest of the country as uncompetitive as Michigan currently is. As Southern transplant makers have been one of this country’s true bright spots over the last couple of decades, this will be a truly tragic development for what little remains of American manufacturing and the culture surrounding it.
Do I still get my $2.99/gallon gasoline ?
I had a Fiat one time. Paid $10 for it, sold it for $25 and a case of beer. True.
http://img.photobucket.com/albums/v391/dogsledder54/fiat.jpg
And it ran.
The numbers of 20% Fiat, 55% VEBA and 10% US and Canadian governments leaves a gap of 15% – the additional Fiat shares after the conditions. Who owns those 15% before Fiat meets the conditions, then?
As for crash testing, the 500 will meet all current US crash test requirements easily. A lot of the cars sold in the US, such as the VW Golf, Jetta, the Smart, and MINI do not do better in crash tests in Europe than the 500 (many of the so highly praised pick-ups do significantly worse – of course there is always the weight argument when it comes to crashing into other cars as opposed to static objects) – so there is no reason to believe it will suddenly turn into a deathbucket when shipped over the pond.