By Gilles Castonguay
MILAN (Reuters) - Italy's FIAT (F.IT)will take a 35 percent stake in U.S. car maker Chrysler LLC -- valued at zero by its part-owner -- in a deal aimed at helping the pair survive the worst crisis to hit their industry in decades.
Fiat is not paying cash for the stake but in return will share products and platforms for small cars with Chrysler, which has already grasped billions of dollars from the U.S. government to avoid bankruptcy. It will also share its green technologies.
Chrysler, which makes gas-guzzling Jeep and Dodge, is 80.1 percent owned by Cerberus Capital Management, which paid $7.2 billion for that stake in 2007. The rest is held by German car maker Daimler, which considers the 19.9 percent holding to have no value.
Fiat, worth about $7.5 billion, has said it needs a partner to make it big enough to survive. Chief Executive Sergio Marchionne said in a joint statement the deal was designed to help Fiat boost its volumes. It will also help Fiat return to the U.S. market where it has long been absent.
Chrysler is the No. 3 U.S. car maker by sales. In a letter to employees, Chrysler Chief Executive Bob Nardelli said the deal would "significantly enhance the long-term viability" of the company.
The deal will allow Chrysler to sell in more foreign markets, give it access to fuel-efficient technology and expand its product portfolio with small cars, a Fiat specialty.
The agreement would also help the two cut costs.
Speaking to reporters at an event in Milan, Fiat Vice Chairman John Elkann said Fiat could raise its stake.
Fiat shares jumped 4.46 percent to 4.68 euros after being halted from trade ahead of the news.
Italian Economy Minister Giulio Tremonti said the alliance was "good news," and a sign of vitality.
CHEAP TICKET TO THE UNITED STATES
Analysts said the outlined deal looked mostly positive for Fiat because they saw it as a cheap way for it to enter the U.S. market -- still huge despite falling sales, especially for gas-guzzling vehicles.
Some of them had doubts about its success in helping Chrysler, the weakest of Detroit's three car makers.
"What Daimler or private equity could not fix is not likely to be fixed by Fiat," Harald Hendrikse at Bank of America Merrill Lynch said in a note.
Nardelli said he expected the deal to be closed as early as April.
Most of Chrysler's sales are in the U.S. market and they dropped 30 percent last year.
It burned through $9 billion in the second half of 2008 and ended the year with $2 billion in cash.
Chrysler has held talks with Renault-Nissan and General Motors in the past but has denied positioning itself for a sale.
Daimler said on Tuesday it was still interested in selling its stake in Chrysler and welcomed any initiative that served to stabilize the situation at the U.S. car maker.
It has written down the book value of its remaining 19.9 percent stake to zero.
Like General Motors, which also got government money, Chrysler is required to meet cost-cutting targets as a condition for the loans as well as show it has plans to be viable.
It also has to show it is committed to developing a new line of vehicles that produce fewer harmful emissions.
Europe's six biggest car maker by unit sales, Fiat is a specialist in small cars and has one of the more environmentally friendly fleets in the region.
Fiat and Chrysler did not cite estimated cost savings from the agreement but the European edition of the Wall Street Journal said it could be between $3 billion and $4 billion.
(Additional reporting by Michael Shields in Frankfurt)
(Editing by Mike Nesbit and Elaine Hardcastle)