Chrysler Group LLC filed for an initial public offering, a move that may ultimately help resolve a dispute between Fiat SpA and the United Auto Workers over the U.S. carmaker’s value as Sergio Marchionne seeks to merge the companies.
The shares are being offered by a UAW retiree health-care trust, or VEBA, which owns the 41.5 percent of Chrysler not held by Turin-based Fiat, according to a regulatory filing yesterday. The offering is for $100 million of stock, an amount used to calculate fees that may change.
Marchionne, chief executive officer of both Fiat and Chrysler, wants to merge the two carmakers to create a global player with the scale to compete with industry leaders Toyota Motor Corp., General Motors Co. and Volkswagen AG. Fiat and the VEBA, locked in a dispute over the value of the company, are now turning to public-market investors to assess how much the Italian carmaker should pay to consolidate the companies.
“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.”
Voluntary employee beneficiary associations, called VEBAs for short, are responsible for health care for retired union members. Chrysler’s VEBA is seeking a price for its stake that is at least $1 billion more than Fiat wants to pay.
Marchionne, 61, has spent the past four years seeking to unify the companies. Buying the trust’s stake will help Fiat access Chrysler’s cash, which totaled $12.2 billion at the end of June, filings show. That could help fund a turnaround in Europe, where Fiat is losing money and market share.
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 in 2009.
Fiat has already exercised options to buy 10 percent of Chrysler from the VEBA and has rights to buy an additional 6.6 percent next year. Fiat has yet to take possession of the holding as the two sides fight in court over the price of the stake.
“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.”
JPMorgan Chase & Co. is managing the IPO, yesterday’s filing shows. The health-care trust is selling all of the shares in the offering, and neither Auburn Hills, Michigan-based Chrysler nor Fiat will receive any proceeds from the sale. Chrysler will change its name to Chrysler Group Corp. before the IPO, according to the filing.
Ron Bloom, now a Lazard Ltd. vice chairman, will assist Marchionne in trying to strike a deal with the trust, people famliar with the matter said this month. The adviser represented the U.S. Treasury Department four years ago in talks that led to Marchionne’s Fiat taking control of Chrysler from the government.
Bloom became President Barack Obama’s top manufacturing adviser after the U.S.’s auto bailouts in 2009 that saved GM and Chrysler. Before joining the bailout team, Bloom was an adviser to the United Steelworkers union and a manufacturing specialist at Hamilton, Bermuda-based Lazard.
Merging with Chrysler would allow Fiat to tighten cooperation 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, totaled 1.41 billion euros ($1.9 billion) in 2012. Without Chrysler, Fiat would have posted a 1.04 billion- euro loss.
Fiat started accumulating Chrysler stock in June 2009 as part of the government and labor-union bailout of the U.S. carmaker, which was losing as much as $100 million a day at the time. Rather than paying cash for the initial 20 percent holding and subsequent 15 percent stake, Fiat provided management experience and technology and helped Chrysler meet various performance milestones, such as developing models.