Fiat-Chrysler giant takes shape with $1.3-billion deal

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Fiat and Chrysler took a major step towards forming a global auto giant on Thursday with a $1.3-billion deal increasing Fiat's stake in the US firm to 46 per cent.

Fiat said the 889-million-euro deal to boost its stake in Chrysler from 30 per cent would be completed during the second quarter and would include loans from the US and Canadian governments being 'fully repaid'.

Fiat took over management of Chrysler after the iconic US company emerged from bankruptcy in 2009 after an implosion of the auto sector in the United States triggered by a plunge in car sales during the global economic crisis.

"This is a fundamental step toward completion of the momentous integration of Fiat and Chrysler initiated less than two years ago," Fiat chief executive Sergio Marchionne, who also heads up Chrysler, said in a statement.

The deal 'will result in the creation of a global automaker', he said.

Fiat also said on Thursday it expected to increase its stake by a further five per cent to 51 per cent 'before year end'.

Investors welcomed the news, with Fiat's share price on the Milan stock exchange gaining 1.98 percent to 6.705 euros in early trading.

Chrysler confirmed the deal, saying that 'Fiat has agreed with Chrysler Group's other members that it will exercise its option' to increase the stake.

The other shareholders are the US and Canadian governments and the pension fund of the AUW union based in Detroit at the hear of the US auto industry.

At the end of 2010, Chrysler owed the US government $5.8 billion and $1.7 billion to the Canadian government and the province of Ontario.

Chrysler is set to raise around seven billion euros in debt on the markets.

Fiat, which announced its first-quarter profits on Wednesday, said it had chosen to 'accelerate the pace' of the merger. Analysts said the financial time was right ahead of a planned listing of Chrysler at the end of 2011.

"Fiat, together with Chrysler, will create a stronger automobile group, with a full range of products, present in every market around the world and able to compete with the best," the Turin-based company said.

Fiat and Chrysler combined have a production volume of around four million vehicles a year, which should be increased to six million by 2014 - putting the combined company among the top auto makers in the world.

Toyota was the world's biggest car maker last year with total sales of 8.418 million vehicles. General Motors produced 8.39 million.

"The transaction that we are announcing today represents a historic step for Fiat and Chrysler," Fiat chairman John Elkann, grandson of Fiat's historic boss Gianni Agnelli for decades, said in a statement.

Fiat began managing Chrysler in June 2009 with a 20-per cent stake.