The Deal: Chrysler Test Drives Its IPO

NEW YORK (The Deal) -- Chrysler Group late Monday filed to return to public markets amid continuing conflict between the automaker's two primary shareholders.

Auburn Hills, Mich.-based Chrysler filed preliminary paperwork for a proposed offering that would be underwritten by JPMorgan, with Scott D. Miller of Sullivan & Cromwell LLP representing the company and William P. Rogers Jr. and William V. Fogg of Cravath, Swaine & Moore LLP serving as underwriter counsel.

The filing highlights both the remarkable success Chrysler has experienced since its 2009 government bailout, and the infighting that has plagued it more recently.

Chrysler emerged from Chapter 11 protection with financial support from Fiat as part of a complex deal that has resulted in the Italian carmaker steadily increasing its ownership to 58.5%. The remaining shares are owned by a union-managed trust 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. Combining the two companies would allow Fiat to access Chrysler's cash reserves to fund operations as well as make it easier for the Italian company to cut back office costs by further integrating their operations.

Chrysler has enjoyed recent sales success thanks in part to new, more fuel-efficient designs borrowed from Fiat, generating a profit of $507 million in the second quarter of 2013.

Sergio Marchionne, who serves as CEO of both Fiat and Chrysler, said earlier this month the trust wants upwards of $5 billion for its stake, about $2 billion more than Fiat is prepared to pay. The shares to be sold in the IPO, which represent about 16% of the Chrysler's total, are part of VEBA's stake.

Despite the filing it is possible the shares will never be sold to the public. There are reasons for both sides to come to the table and resolve their dispute prior to an offering. Marchionne is eager to combine Fiat and Chrysler, and a public ownership figures to greatly complicate that process. Outside investors could advocate a strategy other than combining with Fiat, or at least demand Fiat pay up for the stake or otherwise prolong the process of merging the two companies.