Chrysler has been sold off to a group led by Italian automaker Fiat. The current owners of the company will be pushed out under terms of the deal.
An American bankruptcy judge approved the sale of Chrysler LLC assets to a group led by Italian firm Fiat SpA. The ruling was handed down late on Sunday by Judge Arthur Gonzalez in a 47-page opinion, according to the Detroit News.
Fiat still retains the right to cancel the deal until June 15.
Chrysler's dire condition was made obvious by Judge Gonzalez, who wrote, "The only other alternative is the immediate liquidation of the company." Gonzalez' opinion was not only in favor of the sale, but also in favor of a tax arrangement related to the Daimler sale of Chrysler to private-equity firm Cerberus Capital Management. Gonzalez also ruled against a challenge to the use of TARP bailout funds for the purpose of restructuring automakers.
When Chrysler LLC exits bankruptcy as the Chrysler Group LLC, the company will have a new set of owners. Fiat will take 20 percent, with the possibility of a short-term increase to 35 percent if specific financial and manufacturing goals are met. One of these is the development of a new 40 mpg petrol vehicle. In time, Fiat could take up to 51 percent if the TARP loas are paid back on time.
Of this, Judge Gonzalez wrote, "The whole enterprise may be worth more than the sum of its parts because of the synergy between Chrysler, which provides its network of dealerships, its production of larger cars, and Fiat, which provides the smaller car technology, and the access to certain international markets."
In the meantime, the health-care fund of the United Auto Workers will get a 55 percent share of the firm, with the American government getting 8 percent. As part of the plan, the American government pledged an additional $6 billion infusion to the new company. Canada will take on 2 percent of the firm. Current Chrysler owner Cerberus will have been wedged out entirely. In defense of this, Judge Gonzalez said, "Indeed, because of the overriding concern of the U.S. and Canadian governments to protect the public interest, the terms of the Fiat Transaction present an opportunity that the marketplace alone could not offer, and that certainly exceeds the liquidation value."
By ruling in favor of a Chrysler sale, Judge Gonzalez has cleared the way for Chrysler to exit bankruptcy protection as soon as today. The judge will still hear objections brought by representatives of the nearly 800 Chrysler dealerships the company wishes to close. In addition to the dealerships, several Indiana pension funds also object to the sale. They were offered a mere $0.29 for every dollar's worth of their Chrysler secured debt. That deal was offered by the government to take possession of nearly $7 billion in debt.
The pensioners are expected to file an appeal in U.S. District Court to halt the deal.