GM Pays Fiat $2 Billion to End Alliance

General Motors(GM Quote) agreed Sunday to pay Fiat (FIA Quote) $2 billion, or 1.55 billion euros, to settle a long-running contract dispute between the two automakers. The payment prevents GM from having to purchase Fiat's loss-generating Fiat Auto unit.

MarketWatch reports that the boards of both companies have approved the deal, for which Detroit, Mich.-based GM will take an after-tax charge of $840 million, or $1.49 a share.

With the settlement, GM and Fiat dissolve a five-year partnership, begun when GM purchased 20% of Fiat Auto. Fiat will continue to supply diesel engines to GM, but the companies will dissolve their two joint ventures in powertrains and purchasing.

Termination of the master agreement includes invalidation of a put option that would have compelled GM to purchase the 90% of Fiat Auto that it didn't already own. According to Reuters, a recapitalization at Fiat had halved GM's initial 20% investment in the Italian automaker, which GM argued invalidated the put option; Fiat argued that GM had prevented it from pursuing other partnerships and planned to commence exercising the put later this week.

Shares of GM closed up Friday, rising 46 cents, or 1.25%, to $37.14.