Fiat/Chrysler CEO Sergio Marchionne returns to the IPO alternative as his dispute with the UAW drags on.
Chrysler Group LLC is filing for an IPO, a step that Sergio Marchione, the CEO of both Chrysler and its Italian ally Fiat, had hoped to avoid.
The move is a step of last resort, the result of an ongoing dispute between Fiat, which owns a majority stake in the U.S. maker, and the union retirement health care trust that holds the remaining 41.5% stake in Chrysler. The two are currently battling in the Delaware courts over the value of the so-called VEBA’s holdings in the once-bankrupt American automaker.
The specific price, as well as the number of shares to be auctioned off, have yet to be set. JPMorgan will serve as the investment banker putting together the Initial Public Offering, which will see Chrysler traded publicly for the first time since it entered a “merger of equals” with Germany’s Daimler-Benz in 1998.
“The common shares to be sold in this offering are proposed to be sold by the UAW Retiree Medical Benefits Trust (the “VEBA Trust”), which has exercised demand registration rights under a shareholders’ agreement with Chrysler Group LLC,” said a statement issued shortly after Wall Street trading ended for the day on Monday. “The VEBA Trust will receive all of the net proceeds from this offering,” the statement noted.
Fiat took functional control of Chrysler following the U.S. maker’s mid-2009 emergence from Chapter 11 bankruptcy protection. After initially receiving a 20% stake in Chrysler from the federal government, Fiat steadily expanded its holdings by meeting a series of benchmarks. It currently has a 58.5% stake and would like to take 100% but has run into a roadblock in the form of the VEBA which sharply disagrees with the automakers over the value of the trust fund’s shares.
(For more on the Chrysler stock dispute, Click Here.)
Shortly after Chrysler’s rebirth, CEO Marchionne indicated his interest in an IPO. But it quickly became clear that Fiat and Chrysler would try avoid that process, the Italian maker preferring to simply purchase the shares still held by the VEBA. The language of Chrysler’s federal bailout allows Fiat to purchase the remaining union holdings in 3.3% tranches over time.
With the lawsuit Fiat filed in Delaware Chancery Court dragging on – with a ruling possibly not coming until 2015 – Fiat apparently saw no other quick option than to go the IPO route.
Various industry analysts have suggested that such a move could generate anywhere from $4 billion to as much as $15 billion in proceeds, but Marchionne is expected to try to cap the initial sale at a fraction of that figure, perhaps as little as $100 million.
The good news for the VEBA is that after sinking sharply in value in 2012, automotive stocks have surged sharply in recent months, partly due to government monetary policies but largely the result of the unexpected upturn in the U.S. new car market.
That’s been particularly good news for Chrysler’s cross-town rival General Motors which issued its own IPO in November 2011 at $33 a share, only to watch its share price plunge during the following 12 months. GM stock dipped below $20 before rebounding in late summer 2012 and closed Monday trading at $37.13 a share, a 0.8% increase for the day, and a nearly 70% increase from the maker’s 52-week low.
(GM regains investment grade rating after big stock buyback. Click Here for the details.)
But while a rising stock price could be great news for the UAW, it could make it all the more difficult – and costly — for Fiat to eventually complete the takeover of its U.S. ally.
(Rising stock market could cut in half Treasury loss on GM bailout. Click Here for the story.)