Shares in the Italian car giant fiat surged over 15% on Thursdayfollowing the announcement of its plan to buy the remaining 41% of Chrysler it does not own.
Fiat has owned a majority stake in the US company since 2009.
The agreement ends long negotiations with the current owners, Veba, the healthcare trust affiliated to the United Auto Workers’ union (UAW).
The move will create the world’s seventh-largest car company.
Chrysler and Fiat will pay the trust an initial $3.65bn (£2.2bn).
Once the deal is signed off, Chrysler will pay Fiat another $700m.
Fiat’s chief executive, Sergio Marchionne, plans to widen the company’s global reach.
The Veba trust looks after medical benefits for 117,000 retired Chrysler workers and their dependents.
Robert Naftaly, chair of the committee that governs the trust said: “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.”
The alliance between the two companies came amid the major restructuring of the US car industry following the financial crisis of the late 2000s.
The link-up gave Fiat access to the vast US car market, while Chrysler was able to benefit from the Italian firm’s expertise in developing small, fuel efficient vehicles.
Recently, Chrysler reported a 22% rise in third-quarter profits to $464m, with net revenue up 13.5% to $17.6bn.
The company said its results had been helped by strong sales of its Jeep Grand Cherokee and the Ram 1500 pickup.