The Legal Form Used For Combining the Companies
The notable occurrences during the Fiat and Chrysler takeover depict critical insights. The incidence evidently remains one of the most ferocious and hostile company takeover ever experienced in the U.S. Given the legal tussles that ensued between different parties of interest, the takeover seemed more of a forced occurrence. The involvement of the Supreme Court in the takeover process also depicts the level of distinction that this occurrence envisaged. On the 30 April of 2009, Chrysler filed a case in the legal court seeking protection from its notable creditors (Ball, Cullen & Thomson, 2009).
This was pursuant to the Chapter 11 of the US Bankruptcy Code. Consequently, Chrysler publicized its intentions for the global strategic union with Fiat. Following a lengthy and tough judicial process, the corporation initially identifiable as Chrysler LLC sold considerably its entire assets. This was on the 10 of June 2009. The sale was carried minus any debts or liabilities. The new company that assumed the takeover was to operate as Chrysler Group LLC.
Fiat obtained a preliminary 20 percent equity interest in the sold Chrysler. It also engaged into a considerable number of deals with the corporation to offer it with access to particular Fiat technology (Gaughan, 2011). These also included platforms as well as power trains. Despite Fiat’s considerably narrow share percentage, the company holds entitlements in the decision resolution processes. This means that Fiat is able to exercise solitary control on Chrysler. An analysis of this transaction indicates that horizontal overlaps notable between the operations of Chrysler as well as those of Fiat are largely limited. Therefore, it can be deduced that this takeover may not change the existent competitive system within the market.
The Accounting Method Used to Account for Each Merger or Acquisition
The U.S. Department of Treasury offered an additional capital to finance the proposed viability plan. In the closure of its Chryslers’ sale, the federal entities were entitled to a 12.31 percent. In this part, the federal treasury had a slot of 9.85 percent while the relevant Canada agency had 2.46 percent of this. VEBA and Fiat held 67.69% and 20% respectively (Labonte & Capitol, 2009). Fiat’s interests were projected to rise overtime to 35%. Following the rise, Fiat would also gain the entitlement to obtain a supplementary valued at 16% through the purchase of shares. The mergers and acquisitions largely depended on the calculated debts of the company. These were noted to derive from the U.S. Department of Treasury as well as the Canada Export Development.
It is also notable that the treasury as well as the Export Development Canada and the governmental entities accented to offer a Debtor-In-Possession premised financing. Strictly, this was to occur for a period of 60 days. Moreover, it was to be specified within the sum of $4.96 billion. Lastly, it is observable that the relevant Governmental Entities approved to offer a $6 billion financing facility. This was strictly to prop up the operations of the newly established Chrysler. The Chrysler LLC was authorized to offer new membership interests. There was a specified distribution percentage, with 55 percent specified for VEBA and an additional 8 percent to the U.S. Department of Treasury (Ciravegna, 2012).
The Terms of the Transaction
This transaction ensued from rigorous consultations that involved Fiat, the U.S. Department of Treasury and the Presidential Auto Task Force. Other agencies involved included the United Auto Workers union (UAW), the Pension Benefit Guaranty Corporation (PBGC) and Chrysler Financial (Ball, Cullen & Thomson, 2009). GMAC Financial Services as well as the custodians of approximately $7 billion of the secured Chrysler bank debt were also present in the negotiation processes. Observably, the negotiations resulted into a speedy court process. This court process began on April 30, 2009. This commencement period marks the time when Chrysler LLC filed for protection. This was done in accordance with chapter 11 of the Federal Bankruptcy Code.
The Chrysler LLC also sought endorsement for an expedited bid procedure and sale. It is notable to indicate that the relevant assets got sold. This was in exchange for $2 billion in cash (Ball, Cullen & Thomson, 2009). Moreover, this also involved an assumption of various Chrysler debts by New Chrysler. This transaction became consummated following a sales directive by the U.S. Bankruptcy Court based in Manhattan.
Although the process entailed considerable filings as well as hearings in the Bankruptcy Court and a gigantic endeavor by Jones Day bankruptcy and litigation experts, the advancement, design, and implementation of the sale was largely an M&A deal. This called for the skill and familiarity of an extensive transactional squad from Jones Day. Jones Day was Chrysler’s restructuring counsel.
Other terms of this transaction specified the relevant operational requirements. These were to be adhered to mandatorily by the parties involved. For instance, Fiat lacked the authority to entirely indulge in the management of the newly founded Chrysler. This condition was to prevail until the U.S. Department of Treasury and Export Development Canada fully recovered their due. Fiat was also conditioned to contribute to the new company’s reach for aggressive and fuel-efficient motors platforms (Zino, 2009). This involved support for access to particular technology and enhancement of product distribution competencies.
References
Ball, C., Cullen,T. & Thomson, J. (2009). Chrysler sold to Fiat-led “New Chrysler” after historic court proceedings. Web.
Ciravegna, L. (2012). Sustaining Industrial Competitiveness After the Crisis: Lessons from the Automotive Industry. New York, NY: Palgrave Macmillan.
Gaughan, P. (2011). Mergers, acquisitions, and corporate restructurings. Hoboken, NJ: Wiley.
Labonte, M. & Capitol.Net, Inc. (2009). Recession, depression, insolvency, bankruptcy, and federal bailouts. Alexandia, VA: The Capitol.
Zino, K. (2009). Fiat to Take Over Chrysler in Latest Plan. Web.