The Deal: Chrysler Accelerates Toward IPO
NEW YORK (TheStreet) -- Chrysler Group is poised to file for an initial public offering as soon as this month, as the automaker seeks to complete its transformation from recession lows and resolve a dispute between its two primary shareholders.
Auburn Hills, Mich.-based Chrysler exited a U.S. government-assisted bankruptcy in 2009 with financial support from Fiat (FIATY) as part of a complex deal that has resulted in the Italian carmaker steadily increasing its ownership to a current 58.5%. The remaining shares are owned by a union-managed trust fund established in 2007 to pay retiree healthcare costs.
Fiat has been seeking to bring Chrysler in-house as a wholly owned unit, but the company to date has been unable to reach an agreement with the United Automobile Workers' Voluntary Employee Beneficiary Association on a valuation of the remaining VEBA-owned shares.
Sergio Marchionne, who serves as CEO of both Fiat and Chrysler, told reporters in Europe over the weekend that a Chrysler listing could occur by year's end or in early 2014.
Though the executive is eager to fully integrate the two companies, a public offering could help ease tensions between Fiat and the UAW over valuation and set a market value for the U.S. automaker's shares.
Marchionne told reporters last week that Fiat would not pay the $5 billion he said the VEBA wants for its stake, saying "they should buy a lottery ticket" instead. The two sides have been unable to come to an agreement even after a Delaware court ruling in July sided with Fiat over a formula for selling a small piece of the VEBA's stake, but stopped short of mandating the trust sell the shares at that price.
The potential for a public listing offers risks for both sides, and could push the parties to reach an agreement. A publicly traded Chrysler could attract attention from investors who might advocate a strategy other than combining with Fiat, or at least demand Fiat to pay up for the stake.
But under the terms of the restructuring agreement VEBA can only sell about one-quarter of its stake, or about 10% of Chrysler's total shares. Given the very limited stake to be sold and Chrysler's relatively small market position in the U.S., some auto analysts believe VEBA could find demand for the shares tepid.
If so, the offering could reinforce Fiat's view on Chrysler's valuation, and give the Italians a chance to buy up the stake at a discount to what VEBA had been seeking.
-- Written by Lou Whiteman in New York