Chrysler CEO Sergio Marchionne shown here during an appearance with UAW President Bob King.
The trust fund that pays medical bills for Chrysler’s unionized retirees wants the automaker to put a value on its share by selling a relatively small block of Chrysler stock.
While General Motors, which also went through bankruptcy and a subsequent U.S. government bailout, took itself public in November 2010, Chrysler has so far avoided a long-discussed IPO.
The United Auto Workers Union Retiree Medical Benefits Trust – often referred to as a VEBA — now owns 41.5% of Chrysler shares. It is asking Chrysler to start the process for an initial public stock offering. The trust wants the company to sell 16.6% of the stock owned by the trust so it can put a value on the shares.
A listing also would open the door to future sales of the holdings of the trust, which was created a half decade ago so Chrysler could offload a portion of its multi-billion dollar retiree health care obligations.
Italian carmaker Fiat SpA, which owns the remaining 58.5% of Chrysler, is fighting the trust in a Delaware court over the value of Chrysler shares. Fiat has options to buy up to 16.6% of the trust’s holdings. It has filed plans to buy 6.6% and says it eventually wants to buy the rest – and the determination of the court could have a huge impact on the price Fiat will pay.
Fiat and the trust got their shares after the U.S. government bailed out Chrysler in 2009. The Italian automaker started with a 20% stake but has steadily increased its holdings by meeting a series of hurdles laid out by the Treasury, as well as purchasing some additional shares.
Fiat/Chrysler CEO Sergio Marchionne had openly discussed the possibility of selling Chrysler stock publicly when he took over the company in 2009. However, the idea of an IPO was shelved last year. Since the lawsuit was filed by the UAW trust, Marchionne has declined to comment on the possible sale.
Marchionne, however, has been quoted as saying that Fiat’s financial struggles in Italy – where it is heavily investing in a bid to turn its operations around — means the company does not have the cash on hand to buy the trust’s shares outright.
However, the request by the trust for Chrysler to file paperwork with the U.S. Securities and Exchange Commission could be the first step toward a public offering at same point in the future.
Chrysler and Fiat said in statements that they will comply with obligations of the Chrysler ownership agreement, but neither committed to a public stock sale. The trust fund and the UAW declined comment.
The Chrysler portion of the trust is currently underfunded by approximately $5 billion, according to the best estimates of actuaries.
Fiat has made offers to the trust to raise its stake to 65.17% in two tranches. But the sales have been held up by the court fight.
Fiat said that the offer for the second tranche of 3.3% made earlier this month is worth $198 million, but the trust believes it is worth $100s of millions more.