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Italian automaker Fiat is set to become the world's seventh largest automaker as it agreed to buy the remaining stake in Chrysler Group owned by the United Auto Workers (UAW) retiree health-care trust.

Fiat will pay $4.35bn (£2.63bn, €3.15bn) for the remaining 41.46% stake in Chrysler that is owned by the UAW Retiree Medical Benefits Trust, a Voluntary Employees' Beneficiary Association (VEBA).

Fiat and the UAW trust have shared ownership of Chrysler since it emerged from bankruptcy in 2009.

Under terms of the agreement, Fiat, which already owns 58.5% of Chrysler, will pay $1.75bn to the trust in cash, while Chrysler will contribute $1.9bn through a special dividend.

In addition, Chrysler will pay the trust $700m in four annual instalments, with the first to be made when the deal closes.

Fiat said it will pay its dues from cash on hand and would not go for a share sale.

"In the life of every major organisation and its people, there are defining moments that go down in the history books. For Fiat and Chrysler, the agreement just reached with the VEBA is clearly one of those moments," Sergio Marchionne, CEO of Fiat and chairman and CEO of Chrysler Group, said in a statement.

"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 organisation that will ensure all employees a challenging and rewarding environment."

The transaction is expected to close on or before 20 January.

Fiat is trading up 14.63% at €6.82 as at 3:23 am ET on Milan stock exchange.

Challenge to Global Players

The deal fulfils the dream of Marchionne, who has been looking to create a company of global scale that can rival leading automakers such as General Motors, Volkswagen and Toyota.

In addition, Chrysler's full ownership would offer more funds for Fiat's planned expansion as it would combine the revenues of the two companies.

Fiat's partial ownership has helped Chrysler. Having returned to profitability in 2011, the company significantly improved its sales and market share.

For the third quarter of 2013, the company recorded a 22% increase in profits to $464m as it sales rose 13.5% to $17.6bn.

For fiscal year 2013, Chrysler's global sales volumes are expected to be 2.6 million vehicles, up about 18% from 2012.