Chrysler and Fiat appear to be headed towards a finalized deal, after a block put in place by the U.S. Supreme Court was lifted. We have the details inside.
The United States Supreme Court has lifted their block of the Chrysler LLC asset sale to Fiat. In a two-page, unsigned order, the court wrote that the Indiana pension funds had not given the court substantial cause to extend the delay further.
Chrysler, Fiat, and the U.S. Department of Justice all filed briefs with the High Court asking the court to reject the case. Although Fiat has the right to walk away from the deal if it is not finalized by June 15, the Italian automaker had said it was committed to the buyout.
Over the weekend, Justice Ruth Bader Ginsburg issued a temporary halt to the sale, presumably to allow the court more time to investigate the situation raised by the Indiana funds. Directors of those funds believed their firms were getting shortchanged by the government-backed deal, authorizing the buyout of the secured Chrysler debt held by the funds. As the deal stands, the funds would get less than $0.30 for every dollar of debt they hold. This makes their $42.5 million investment worth just $12.3 million. The funds were also frustrated that the deal prioritized unsecured creditors above the secured ones, believing this violated previous agreements.
However, the funds only represented about 8% of Chrysler's debt. Those firms holding the remaining $6.86 billion in debt accepted the deal.
Chrysler released a statement after hearing about the ruling, saying, "The transaction is expected to close very shortly ... enabling the previously announced global strategic alliance, forming a vibrant new car company, to proceed."
Emerging from 40 days in bankruptcy court will be a new company, called Chrysler Group LLC. The new automaker will be managed by Fiat S.p.A., which will own 20% of the company. For the time being, a health care fund owned by the United Auto Workers will own 68%, with the American government taking eight percent. The remaining two percent will be held by the Canadian government. If Fiat makes early progress both in financial and manufacturing targets, the Italian group can raise their stake to 35%.
One of these targets is the development and release of a 40 mpg petrol vehicle. If Chrysler Group LLC repays their U.S. government loans on time, Fiat can take a 51% stake in the American automaker.