Marchionne attempts to end Chrysler row by filing for IPO
FIAT CEO Sergio Marchionne has filed for an initial public offering (IPO) of Chrysler Group to end a dispute stalling a merger of the car makers by letting investors set the US company’s value.
A United Auto Workers (UAW) retiree healthcare trust, which owns the 41.5% of Chrysler not held by Fiat, is pushing to sell shares on the market after failing to agree on the stake’s value with the Italian vehicle maker.
Mr Marchionne, who runs both car makers, is offering at least $1bn less than what the trust wants for the holding and is banking on a valuation from outside investors closer to his financial assessment of Chrysler. In the filing, he reiterated his ultimate goal of buying the entire stake.
“It’s a game of chicken,” said University of Michigan Stephen M Ross School of Business and Michigan Law School professor Erik Gordon.
“If the IPO prices too low, the VEBA (voluntary employees’ beneficiary association) loses. If it prices higher than Marchionne wants to pay, he is cornered, and will end up paying a premium.”
Fiat shares gained as much as 6c, or 1%, to ¤6.25 in Milan trading yesterday. The stock has risen 63% this year, valuing the Turin-based car maker at ¤7.72bn.
Mr Marchionne has spent the past four years seeking to unify the companies and create a global player with the scale to compete with Toyota Motor Corporation, General Motors (GM) and Volkswagen. Buying the trust’s stake would give Fiat access to Chrysler’s $12bn in cash to help fund a turnaround in Europe, where Fiat is losing money and market share.
The trust’s offering is $100m in stock, according to a regulatory filing late on Monday. Mr Marchionne reiterated his opposition to an IPO in the filing, saying it would delay the combination.
“They’re going to go through the motion of an IPO to come up with a market valuation on Chrysler,” Morningstar analyst Richard Hilgert said. “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 received the holding as part of Chrysler’s governmentbacked bankruptcy in 2009. Fiat has the right to buy the entire stake for $4.25bn, plus 9% annual interest calculated from January 2010, which would total about $6bn at the end of this year.
If the IPO does go ahead, it would follow GM’s $18bn offering in November 2010 and the revitalisation of Detroit’s motor industry after the government-led bailouts. US vehicle sales topped 1.5- million in August, the most in one month since May 2007.
Fiat has already exercised options to buy 10% of Chrysler from the VEBA and has rights to buy an additional 6.6% next year. Fiat has yet to take possession of the holding as the two sides fight in court over the price.
“This is a way to try to determine what a potential fair value might be,” Bahl & Gaynor fund manager Matthew McCormick said. “However, there are a lot of moving parts before that fair value is determined.”
JPMorgan Chase is managing the IPO, Monday’s filing shows. The healthcare trust is selling all of the shares in the offering, and neither Chrysler nor Fiat will receive any proceeds. Chrysler will change its name to Chrysler Group Corporation before the IPO, according to the filing.
Mr Marchionne plans to handle the presentation to investors, saying this month: “I’ll work my buns off to get the best possible reception in the equity market, but there’s a limit to my talents.”
Lazard vice-chairman Ron Bloom will assist Mr Marchionne
I’ll work my buns off to get the best possible reception in the equity market, but there’s a limit to my talents
in trying to strike a deal, people familiar with the matter said this month. Four years ago, the adviser represented the US in talks that led to Fiat taking control of Chrysler from the government.
Mr Bloom became US President Barack Obama’s top manufacturing adviser after the US’s vehicle producers’ bail-outs in 2009 that saved GM and Chrysler. Before joining the bail-out team, Mr Bloom was an adviser to the United Steelworkers union and a manufacturing specialist at Bermuda-based Lazard.
Merging with Chrysler would allow Fiat to tighten co-operation among the brands of both companies. Fiat already relies on Chrysler to sustain the group’s profit amid losses in Europe, where the car market is on pace to fall a sixth straight year to the lowest since region-wide record keeping began in 1990. Group net income, including minority holdings, totalled ¤1.41bn last year.
Without Chrysler, Fiat would have posted a ¤1.04bn loss last year.