(January 3, 2014) – America’s largest voluntary employee beneficiary association (VEBA) has struck a $4.35 billion deal to sell one of its founding assets: a 41% stake in Chrysler Group.
The UAW Retiree Medical Benefits Trust—launched in 2010 to fund health coverage for Ford, General Motors, and Chrysler retirees—will be paid $1.75 billion in cash by Fiat for the shares.
According to the Italian car manufacturer, it expects to have sufficient cash on hand to fund this payment. “Given the funding arrangements for this transaction, it is not envisioned that Fiat will require equity capital to be raised via a rights issue,” the firm said in a statement.
In addition to Fiat’s outlay, Chrysler has agreed to contribute $1.9 billion at the time of closing to cover member liabilities. Once fully acquired by Fiat, the auto company will provide four more $700 million annual payouts to the trust.
In aggregate, a successful buyout of Chrysler will generate $4.35 billion in healthcare funding for the more than 779,000 members, according to the VEBA.
“This agreement is in the best interests of the trust’s UAW Chrysler retiree members and their families who rely on the trust to provide vital health care benefits,” said Robert Naftaly, chair of the 11-person committee that governs the fund.
Staff at the Detroit-based fund declined to comment further on the deal.
However, in a September interview with aiCIO, investment chief Ken Frier indicated that the trust’s liabilities demand more liquidity than might be typical for major institutional funds. In 2012, for example, its payout hit $4.1 billion.
“We can’t just follow the endowment model,” Frier said. “Because we have a larger outflow than most endowments or foundations, we need to have a larger amount of our portfolio in liquid assets… We’re going to be the organization that every day looks at our risk budget and market prices to figure out how we can do the best for our members.”
The UAW Retiree Medical Benefits Trust is the largest non-governmental purchaser of retiree healthcare in the United States, and its membership rolls continue to grow.
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