Chrysler plant 2011
A Chrysler plant. Reuters

Italian carmaker Fiat SpA (BIT:F) on Wednesday agreed to buy the remaining shares that it did not own in Chrysler Group LLC, in a $3.6 billion deal, from the VEBA Trust, a retiree health care trust affiliated with the United Auto Workers union, or UAW, moving the long-anticipated merger of the two automakers a step closer to completion.

The deal, which comes after more than a year of intense negotiations, removes a major obstacle to the planned merger of Fiat and Chrysler, which will make the trans-Atlantic group the seventh-largest automaker in the world. Sergio Marchionne, the group's CEO, has been working toward merging the two companies since the Italian icon took control of the Detroit Big Three giant after pulling it out of bankruptcy in 2009, in a government-aided bailout program.

“The unified ownership structure will now allow us to fully execute our vision of creating a global automaker that is truly unique in terms of mix of experience, perspective and know-how, a solid and open organization that will ensure all employees a challenging and rewarding environment,” Marchionne said, in a statement.

According to the deal, Fiat will pay $1.9 billion while Chrysler will pay $1.75 billion to VEBA, to buy out the trust's stake in the third-largest automaker in the U.S. Chrysler will pay VEBA an additional $700 million in four annual installments of $175 million, taking Chrysler’s total valuation to $10.5 billion.

The agreed amount is slightly above what Fiat expected to pay, but is lower than the $5 billion the UAW had been pushing for its stake in Chrysler. The union had upped the ante on the proposal, pressurizing Fiat to take Chrysler public with an initial public offer, a move that was resisted by Marchionne and the Fiat team, as it would have made the proposed merger difficult. The current deal, expected to close on or before Jan. 20, will allow Chrysler to withdraw from the planned IPO.

"We thought they were going to have to pay a lot more than that," a London-based analyst at a major investment bank told Reuters. "The market's going to love this - Marchionne's done it again. He's brought in a deal that looks like a cracking one on the face of it and he doesn't need to do a capital increase."

Fiat acquired a 20 percent stake in the Chrysler Group, the smallest of Detroit's Big Three, during the 2009 U.S. government-backed bailout, and in later years, increased its stake be repaying the bailout money back to the government.

Fiat’s involvement and technical know-how has helped transform Chrysler into a profit-making enterprise, while the U.S. company has given the struggling European carmaker a foothold in the North American market.

Recently, Chrysler reported a 22 percent increase in third-quarter profits to $464 million, and the firm’s net revenue was up 13.5 percent to $17.6 billion. Fiat hopes to cut its losses in European markets and expand its product line by pooling the two companies' resources and the networks at home and abroad.

Fiat was trading up 13.3 percent, rallying the most in more than four years, during afternoon trade in Milan.