Chrysler readies IPO; Fiat goes to court

Deal not reached over retiree trust value

9/23/2013
NEW YORK TIMES

DETROIT — Chrysler Group LLC is reluctantly preparing for an initial public offering of some of its shares.

The automaker is proceeding with the IPO after it failed to reach a deal on the value of the stock with the retiree trust that owns a large share of Chrysler.

Chrysler shares haven’t been publicly traded since 1998, when the firm merged with Daimler AG. The Auburn Hills, Mich.-based automaker is now majority owned by Italian automaker Fiat SpA.

The shares that will be sold are owned by a United Auto Workers-run trust that pays the health-care costs for about 130,000 blue-collar Chrysler retirees. The trust owns a 41.5 percent stake in Chrysler and will get all of the proceeds from the sale if it goes forward.

Sergio Marchionne, the CEO of Fiat and Chrysler, has made it clear that he wants to buy the UAW’s share and combine Fiat and Chrysler. But the two sides have been unable to agree on how much the shares are worth.

Last year, Fiat sued the trust in Delaware Chancery Court, saying a 3.3 percent stake it wanted to buy was worth $139.7 million. The trust contended the shares were worth $200 million more than that. In July, a judge refused to set a price and said the issue would have to go to trial,which could take several more years.

“They’re going to go through the motion of an IPO to come up with a market valuation on Chrysler,” said Richard Hilgert, an analyst with Morningstar Inc. in Chicago. “Then the UAW VEBA is going to use this as a basis for negotiations with Fiat to determine what price Fiat should pay for the UAW’s stake.”

The trust fund needs cash to pay medical bills for thousands of Chrysler blue-collar retirees, so it has to sell the shares to another party, such as Fiat, or to the public. At the trust’s request, Chrysler started preparing the paperwork for an IPO at the start of this year.

The firm filed the paperwork with the U.S. Securities and Exchange Commission late Monday.

Chrysler left the U.S. public market 15 years ago when Daimler acquired it. But the combination was a disaster, and Daimler sold most of Chrysler to private equity firm Cerberus Capital Management in 2007.

Cerberus hoped to stanch Chrysler’s losses and rebuild the company, but it was stopped short by the recession, which caused U.S. car sales to plummet. Despite accepting billions in loans from the U.S. government, Chrysler filed for bankruptcy protection in April, 2009.

In a deal brokered by the government, Fiat took over Chrysler’s operations when it emerged from bankruptcy less than three months later. Fiat was given a 20 percent stake in Chrysler and has gradually acquired more of the company.

Mr. Marchionne wants to merge Fiat and Chrysler to form a global player to compete with industry leaders Toyota Motor Corp., General Motors Co., and Volkswagen AG.

Mr. Marchionne said this month that the UAW’s trust “should buy a ticket for the lottery” if it wants to get at least $5 billion for its holding. Fiat has the right to buy the entire stake for $4.25 billion, plus 9 percent annual interest calculated from January, 2010. The trust received the holding as part of Chrysler’s government-backed bankruptcy.

Fiat has exercised its options to buy 10 percent of Chrysler from the VEBA and has rights to buy an extra 6.6 percent next year. Fiat has yet to take possession of the holding.

“This is a way to try to determine what a potential fair value might be,” said Matthew McCormick, a Cincinnati-based fund manager at Bahl & Gaynor Inc. that doesn’t hold Fiat in the $9.6 billion of assets it oversees. “However, there are a lot of moving parts before that fair value is determined.”