Fiat SpA secured full ownership of Chrysler Group LLC in a $4.35billion agreement that will conserve the Italian company’s cashwhile creating a global carmaker with better scale to take onGeneral Motors Co.

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Fiat rose the most in almost five years in Milan trading afterSergio Marchionne, chief executive officer of Chrysler and itsItalian parent, struck an accord to buy a 41.5 percent stake from aUnited Auto Workers retiree health-care trust. The No. 3 U.S.carmaker will put up most of the funding for the transaction,underscoring the CEO’s reputation as a dealmaker.

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“Marchionne did a great job,” Vincenzo Longo, a strategist at IGGroup in Milan, said by phone. “Fiat couldn’t get a betterdeal.”

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The agreement limits the amount of money that Turin-based Fiatmust spend to take over and merge with Chrysler, which it helpedrescue from bankruptcy almost five years ago. That puts the Italiancompany in a position to gain financial resources from the U.S.unit to help turn around unprofitable European operations.Marchionne has sought since taking the helm at Fiat in 2004 tocombine the company with another carmaker to challenge Toyota MotorCorp., GM and Volkswagen AG in sales.

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Assigning the majority of the transaction to Chrysler is “a bitof a coup and will be seen as a big positive surprise,” said MaxWarburton, an analyst at Bernstein Research in Singapore. “The dealsuccessfully secures Fiat’s operational and financial future.”

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Fiat jumped 16 percent to 6.92 euros at the close in Milan, thebiggest gain since April 2009, valuing the carmaker at 8.65 billioneuros ($11.8 billion). The stock, which is at the highest pricesince July 2011, climbed 57 percent in 2013.

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The Italian manufacturer, which already holds 58.5 percent ofAuburn Hills, Michigan-based Chrysler, will pay the trust $1.75billion in cash when the deal closes, Fiat said yesterday in astatement. Chrysler will contribute $1.9 billion through a specialdividend to complete the transaction for the 41.5 percentstake.

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In addition, Chrysler agreed to pay the trust $700 million infour annual installments, with the first to be made when the dealcloses, which Fiat expects by Jan. 20. The Italian company said themoney would come from cash on hand and that a share sale probablywon’t be needed.

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The trust, structured as a voluntary employee beneficiaryassociation, will end plans for an initial public offering of itsChrysler stock. Fiat and the trust will also drop legal action inDelaware intended to resolve a valuation dispute.

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“In the life of every major organization and its people, thereare defining moments that go down in the history books,” Marchionnesaid in the statement. “For Fiat and Chrysler, the agreement justreached with the VEBA is clearly one of those moments.”

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Ron Bloom, a Lazard Ltd. vice chairman, advised Fiat on thetransaction.

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The cost of insuring Fiat’s debt against losses usingcredit-default swaps fell 45 basis points to 296 basis points, thelowest since April 2010 and the biggest decline since March 2012,according to data compiled by Bloomberg. A decline signals animprovement in perceptions of credit quality.

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Fiat’s 6.75 percent notes due October 2019 jumped 3 cents on theeuro to a record 111 cents at 6:10 p.m. in Milan while thecarmaker’s 7.75 percent bond maturing in October 2016 rose 1 centto 112 cents.

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Including earlier purchases of holdings from the U.S. andCanadian governments, Fiat’s spending on Chrysler stakes will total$3.7 billion. That compares with the $36 billion that the thenDaimler-Benz AG paid for the U.S. company in 1998.

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The DaimlerChrysler combination unraveled in 2007, when CerberusCapital Management LP bought 80 percent of Chrysler for $7.4billion. During its nine years of ownership by the Stuttgart,Germany-based maker of Mercedes-Benz luxury cars, Chrysler postedannual profits of as much as $5 billion and losses almost aslarge.

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The Fiat-VEBA agreement’s value is less than some analystsforecast. Banca Akros estimated in December that Marchionne wouldneed to pay $4.5 billion for the trust’s holding.

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Marchionne restarted negotiations with the VEBA the week beforeChristmas, after Fiat’s first proposal in months was initiallyrejected, people familiar with the matter said at the time. As ofDec. 20, Fiat was seeking to pay about $4.2 billion for the stake,compared with the trust’s demands for at least $5 billion, a personfamiliar with the talks said.

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The transaction comes as the U.S. auto industry rebuilds lineupsto propel record sales and profits amid management transitions.Detroit-based GM, which gets a new CEO when Mary Barra succeeds DanAkerson on Jan. 15, brought out 18 new or revamped models in theU.S. in 2013 and plans 14 more this year. Dearborn, Michigan-basedFord Motor Co. plans to introduce 23 vehicles worldwide this year,an onslaught that risks being overshadowed by speculation that CEOAlan Mulally will leave to take the top role at Microsoft Corp.

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Chrysler has increased sales for 44 straight months, led byvehicles developed with help from Fiat, including the Dodge Dartand Jeep Cherokee, as well as offerings such as the Fiat 500 citycar.

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A merger will allow Fiat to pool funding with Chrysler andtighten cooperation between its Alfa Romeo, Lancia and Maseratibrands and the Chrysler, Dodge and Jeep nameplates. Fiat plans toinvest as much as 9 billion euros to revive underused Italianfactories to stem losses in Europe. That plan depends on Fiat’saccess to Chrysler’s $12 billion cash hoard.

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Italian Industry Minister Flavio Zanonato said in a statementtoday that his government is ready to support the Fiat-Chryslerexpansion, and that the full takeover agreement is “verypositive.”

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The time line for a merger may be outlined as soon as lateJanuary, when Fiat’s board meets, said two people familiar with thesituation who asked not to be identified because the talks areprivate.

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Chrysler and Fiat together delivered 4 million vehiclesworldwide in 2012. That compares with 9.07 million vehicles sold byWolfsburg, Germany-based VW, 9.3 million by GM and 9.75 million byJapanese competitor Toyota Motor Corp., according to BloombergIndustries data. Marchionne estimated in June that a merged Fiatand Chrysler will rank seventh in global deliveries.

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Fiat already relies on Chrysler to sustain profit amid losses inEurope, where the car market has fallen to a two- decade low. Groupnet income, including minority holdings, totaled 1.41 billion eurosin 2012. Without Chrysler, Fiat would have posted a 1.04billion-euro loss.

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Fiat started accumulating Chrysler stock in June 2009 as part ofa government and labor-union bailout of the U.S. carmaker, whichwas losing as much as $100 million a day at the time. Rather thanpaying cash for the initial 20 percent holding and subsequent 15percent stake, Fiat provided management experience and technologyand helped Chrysler meet various performance milestones, such asdeveloping models.

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“I have been looking forward to this day from the very momentthat we were chosen to assist in the rebuilding of a vibrantChrysler back in 2009,” Fiat Chairman John Elkann said inyesterday’s statement.

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Elkann also leads Exor SpA, the investment company of Fiat’sfounding Agnelli family that owns 30 percent of the automaker. Exorstock rose 4.5 percent to 30.20 euros, the highest price since theholding company was formed in March 2009 in a reorganization of thefamily’s assets.

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