The IPO is a key maneuver as Fiat tries to acquire all of the Detroit automaker
Normally, a company’s initiation of the process to sell stock to the public represents a bid by executives and key employees to monetize stock options, raise capital for expansion and generally host a coming-out party for a business ready to take on the world.
But Chrysler Group’s just-announced initial public offering is more complicated. It’s not about raising more money to bring flashy new cars to market. Rather, it’s at the epicenter of a fight over the future.
In this case, Chrysler has registered to start selling stock to the public again because its overseer, Italian automaker Fiat, is in a tug-of-war with the trust that presides over retiree’s health benefit. Fiat/Chrysler CEO Sergio Marchionne has said he wants Fiat to take full ownership and to merge the two companies, and may be using the IPO as a maneuver to gain leverage that help him settle the tiff in his favor.
The trust wants to sell, and diversify its holdings, but the hangup is the price. The dispute started with a bid by Fiat to exercise the first of several options under the government bankruptcy deal to buy 3.3% of Chrysler from the the United Auto Worker’s Retiree Medical Benefits Trust. The haggling over the price has been playing out in a Delaware court in what is looking like an agonizingly long process.
The IPO could short-cut the process. Here’s how:
Marchionne wants to buy another chunk of the United Auto Worker’s Retiree Medical Benefits Trust’s stake of Chrysler, the smallest of Detroit’s Big 3 automakers. the eventual goal is to acquire all of Chrysler for Fiat, making it a wholly-owned subsidiary. But the trust is standing in Marchionne’s way by valuing shares at higher levels than Marchionne believes they are worth.
The trust owns 41.5% of Chrysler. Fiat, which took control of Chrysler after its 2009 bankruptcy reorganization, has 58.5%. With Fiat racking up losses due to the European economic downtown, owning all of Chrysler would nicely offset troubles across the pond. It just can’t take full advantage of Chrysler as long as the ownership is split.
But how to value the trust’s share? As Brent Snavely reported last week in the Detroit Free Press, the trust thinks its stake is worth $5 billion. A JP Morgan analyst puts the value at $3 billion, a figure likely closer to what Marchionne is willing to embrace. Asked last week about the trust’s higher valuation, Marchionne was quoted by the LaPresse new agency, via AP, as saying, “Let them buy a lottery ticket” to make up the difference.
Of course, it’s hard not be sympathetic to the trust. The more money they get for their share of Chrysler, the more that will be available to make good on retiree’s health care coverage.
But it sounds like Marchionne would rather stake his companies’ future on IPO shares — with the market setting the price — and not on lottery tickets.
Courtesy of USA Today