Chrysler IPO to bring shareholder battle to a head

PUBLISHED : Tuesday, 17 September, 2013, 10:51am
UPDATED : Tuesday, 17 September, 2013, 10:51am

Chrysler plans to file documents this month that would allow its minority investor to sell shares in a stock market listing, a process that will slow Italian carmaker Fiat’s plans to take full control of the US automaker.

An initial public offering would bring to a head the ongoing battle between Sergio Marchionne, who has led both companies since Chrysler’s government-financed bankruptcy in 2009, and a healthcare trust fund affiliated with the United Auto Workers union.

The trust, a type known as a voluntary employees’ beneficiary association or VEBA, is unhappy with the price Fiat has offered for its Chrysler stake. Now, the VEBA is exercising its right to push Marchionne to take Chrysler public.

Marchionne told reporters on Friday that he expects to file the regulatory documents necessary to take Chrysler public by the end of the month - a move that he has long resisted. The IPO could happen during the first quarter of next year, he added.

Marchionne has repeatedly said he would like to avoid an IPO so Fiat take full ownership of the US automaker. An IPO could delay his plans for a full merger of the two companies.

“It’s in the interest of both parties, but of Fiat in particular, to reach an agreement before a Chrysler IPO,” said ICBPI analyst Luca Arena.

Fiat owns 58.5 per cent of Chrysler and wants to buy the 41.5 per cent stake held by the UAW trust fund, called the UAW Retiree Medical Benefits Trust, to secure access to cash and technology it needs to compete against rivals.

The UAW trust hopes to attract a better price from investors especially as Chrysler’s value continues to rise in the next few years as the US auto industry sustains a robust recovery. But Marchionne hopes the market’s valuation of the US carmaker will convince the VEBA to take Fiat’s existing offer.

The VEBA is seeking more than US$5 billion for its stake, which it obtained as part of Chrysler’s 2009 restructuring, several people familiar with the matter have said.

“They should buy a lottery ticket,” Marchionne said Friday when asked to comment on the US$5 billion figure. UBS analysts estimate the stake is worth about US$4 billion.

Fiat shares were down 0.3 per cent Monday to 6.13 euros, extending losses on Friday after Marchionne said he was not getting any closer to striking a deal with VEBA.

The VEBA can sell a stake of up to around 25 per cent of Chrysler in a stock market listing. The rest is locked as part of an agreement that allows Fiat to exercise options to gradually buy portions of the VEBA holding.