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Fiat Races Higher on Chrysler Acquisition

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Fiat Races Higher on Chrysler Acquisition

Could 2014 be a year full of mergers and acquisitions? Many analyst and institutional investors have hinted at many to come over the last couple months. On Wednesday, Wall Street was welcomed to some interesting M&A news out of Europe. Fiat (F.MI), the popular Italian car maker, announced a deal to acquire the 41.5% of Chrysler (NYSE:CGC) it does not yet own in a deal valued at $4.35 billion. The agreement brings to an end to the bitter feud between Fiat and the UAW Trust, which manages healthcare for 117,000 Chrysler retirees, over the value of Chrysler stock.

Under the terms of the deal announced yesterday, Chrysler will use $2.6 billion of its own capital, while Fiat will pay $1.75 billion in the deal. According to the most recent estimates, the deal between the two companies is expected to close on June 20th of this year.
As a consequence of the agreement, Fiat will now own 100% of Chrysler after the transaction closes. The two companies have an interesting history together. Back in 2009, Fiat became Chrysler’s controlling shareholder with a 16% ownership stake after the automaker emerged from Chapter 11 bankruptcy.

As the global economy starts to turn, some analyst are expecting auto manufacturing growth to return to normal levels. In the American markets, both Fiat and Chrysler have been making strong comebacks and shifting customer perception.

Shares of Fiat performed well following the announcement. Fiat’s stock soared 16.4% to close at $9.54 per share in trading on Thursday. The broader markets turned lower to start the new year. The S&P 500 was down by nearly a percent on the first day of trading. This marks the first time the market has closed negative on the first day of trading since 2008.

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