By on September 16, 2013

CHRYSLER_HOUSE_01 (1)

On Friday, Sergio Marchionne, who heads Fiat and Chrysler, told reporters in Milan, Italy that he hasn’t gotten any closer to making a deal with the UAW’s retiree health care trust for Fiat to purchase the VEBA’s shares in Chrysler and take full ownership of the Auburn Hills automaker. The UAW health care trust owns 41.5% of Chrysler and the two parties have not been able to agree on a price. The trust is demanding $5 billion for its shares. Marchionne told the LaPresse news agency, concerning the UAW trust’s suggested price, “They should buy a lottery ticket.”

Marchionne said that though an initial public offering of Chrysler stock could delay a merger with Fiat, his team was preparing for such an IPO in order to comply with a request from the VEBA, which has the legal right to ask for an IPO. The filings with the U.S. Securities and Exchange Commission will be ready by the end of the month. Marchionne said that an IPO for Chrysler could be ready by the end of the year but that he thought that financial markets would be more receptive in the first quarter of 2014.

The Fiat CEO would rather buy the trust’s shares in a block rather than have to buy them back piecemeal from the public should the trust sell them on the open market.

After a July court ruling siding with Fiat over the VEBA concerning the price of a smaller tranche of Chrysler shares, the two sides have failed to agree on a price for the trust’s remaining stake.

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47 Comments on “Marchionne: No Deal Yet For VEBA Shares, Chrysler IPO Would Delay Fiat Merger...”


  • avatar
    Big Al from Oz

    Well, industrial politicking.

    The UAW is vying to position itself as the ‘man’ calling the shots. Interesting. The UAW despise Sergio, they will try and bust his balls at every turn.

    I do think the shares are overvalued. If the UAW think the shares are worth that much why doesn’t the UAW find a buyer? They won’t.

    I do side with Sergio on this one. Unions have no business controlling business. As you can see they will screw it up judging by the UAW’s past examples of doing the right thing for the members it taxes with union dues.

    Sergio will end up buying the shares piecemeal or the UAW just sell them and increase rank and file union dues to cover the shortfall. That’s how a business would operate.

    • 0 avatar
      th009

      Technically VEBA is not UAW. The trustees have a fiduciary duty to maximize the value of the truest for the beneficiaries (ie UAW retirees). UAW union dues are something completely separate.

      Either Marchionne and VEBA work out a deal, or there is an IPO. It’s pretty simple.

      • 0 avatar
        mikey

        @th009..Glad to see someone understands the situation. I’m a Canadian GM hourly retiree,my benefits are administered by the HCT {Health Care Trust}

        Niether GM or Unifor {the former CAW} have any input to the funding at all.

        Funding shortfalls are covered by either increased user premiums, or a reduction in benefits.

      • 0 avatar
        shelvis

        Yes, you get it. VEBA is merely doing their job.

    • 0 avatar
      billfrombuckhead

      From the safety of a government job in nation with national healthcare Big Al’s jihad against the UAW continues.

      • 0 avatar
        shelvis

        I wonder how many of the “makers” posting about the “takers” here do so while posting from government computers at their jobs or while collecting government or military retirements?

        • 0 avatar
          billfrombuckhead

          I think that many of the people that dream of some libertarian utopia are disconnected and/ot protected from reality.

          I’m the polar opposite of someone like Al. I’ve been in commissioned car sales for 30 years next month. I know what it’s like to work 7 days a week, to get up at 5:30 to go to the auction, to close up the store at midnight, to repo a car from someone who lost their job, to fire a someone because of lack of production who’s wife is pregnant, to fire someone because the management, the other salespeople or the wonderful customers are just prejudiced against them. I know how hard it is to try to hire hardworking talented people away from the corporate world or from franchised dealers where they have the benefits. They might be in a dead end and their skills and ambitions thwarted but they won’t take the chance to move and who can blamed them. Most of the employees in independent dealers are rejects often in the criminal justice system. I know what it’s like to meet a payroll or deal with banks.
          I’m thankful to have grown up in a UAW family in a union town. It seesm many of these free market utopians only answer for economic issues is fro someone else to work to work hard foe less money.

          • 0 avatar
            danio3834

            Interesting. I grew up in an a union town in a family with high union membership as well. I wonder why we don’t agree on these issues? Some people see it and other’s don’t I guess.

    • 0 avatar
      ect

      The VEBA trustees have a fiduciary duty to act in the best interests of VEBA and its membership. Reducing risk by replacing the Chrysler shares with cash that can be invested to create a diversified asset pool is a prudent thing to do.

      Trouble is, there is no market for a minority interest in a privately-held company. It’s an illiquid asset. VEBA can’t simply offer their shares for sale – there won’t be a buyer, except perhaps at a fire-sale price.

      So, the only markets for VEBA’s shares in Chrysler are either Fiat (the majority shareholder) or through a public offering that turns Chrysler into a listed company.

      What is going on is not “industrial politicking”. It’s actually called “negotiation”.

      You say the Chrysler shares are overvalued, which is nonsense. You have no analysis to support that statement, or any other basis for it.

      The shares are worth whatever a willing buyer and willing seller agree they are. VEBA is trying to get the highest price it can for them, Fiat is trying to pay the lowest price it can get away with. Each is using the leverage available to it against the other. That’s negotiation, pure and simple.

      Fiat needs to own 100% of Chrysler in order to access Chrysler’s cash, which it very much wants (or needs) to do. VEBA would be foolish not to use this to its advantage in negotiaing a price for its shares – nothing is more capitalistic than that.

    • 0 avatar
      Pch101

      “If the UAW think the shares are worth that much why doesn’t the UAW find a buyer?”

      Er, that’s exactly what the VEBA wants to do. The VEBA wants to have a Chrysler IPO that would allow it to cash out.

      Chrysler doesn’t want an IPO until it controls all of the stock. That strongly suggests that it believes that its purchase offer to the VEBA is below market — Fiat wants to buy stock at a discount, then flip it through its own IPO for a profit.

      The VEBA has a fiduciary obligation to get as much as it can. The agreement with Chrysler allows for a maximum purchase price of over $5 billion. Since the VEBA is holding most of the cars, it would not be surprising if Fiat increased its offer.

    • 0 avatar
      Big Al from Oz

      I think you UAW guys are full of it. It isn’t hard to see who picked the BOD in VEBA.

      It’s easy to find on the net. Here’s the first link i googled under VEBA Chrysler BOD. Not hard, it seems you guys are quite wrong and the UAW has a significant input on who represents them.

      Why wouldn’t that be so? Do you think some right wing Tea Party person selected the VEBA BOD.

      http://www.uaw.org/story/veba-trustees-pick-girsky-blanchard

  • avatar
    mikey

    @ BAFO… Maybe try doing some research, before you sprout off. First off,the UAW does not want to own shares. VEBA was created to fund the high cost of retirees benefits. The UAW would have been just as content if Chrysler would continue to pay retiree benefits. Thats not going to happen. When the agreement was signed in 2007, the UAW accepted a piece of the company,in liew of cash. They would have much rather taken the cash.

    A whole lot of water has gone under the bridge since 2007. The US treasury wants out of the car business, and are unloading shares. We in Canada are also selling our governments stake. Why should the UAW be any different?

    What are the shares worth?.I don’t know,…whats a used car worth? Whats a house worth. Who T.F knows. So the UAW has an inflated view,of the value of their shares. Who doesn’t?

    Like sales of anything else you can name, the price will be determined by the market.

    While trying to straighten your thinking. Here’s a fact you can take to the bank. The UAW will NEVER raise the union dues of the rank and file,active workers, in order to finance the VEBA.

    • 0 avatar
      28-Cars-Later

      So the VEBA is pretty much on its own then to provide for the retirees?

      • 0 avatar
        Pch101

        The VEBA was created by DaimlerChrysler in order to push off retiree benefits to the union. This is something that Daimler wanted, not the union. The union would have preferred to have a defined benefit plan paid for by the company, obviously.

        The VEBA deal included an obligation by Chrysler to fund the VEBA account. At the time of the bankruptcy, the VEBA was owed about $10 billion.

        This unpaid obligation made the VEBA a bankruptcy creditor. In exchange for their $10 billion claim against the old Chrysler, the VEBA accepted stock in the new company, tied to a note that allowed Chrysler to buy back the stock.

        The issue is that the note allows for a maximum payout to the VEBA that is currently above $5 billion. This number keeps going up by 9% per year.

        If the VEBA believes that the stock is currently worth or will eventually be worth the maximum payout amount allowed under its note, then it has no reason to sell early. The only party who is eager to do a deal is Marchionne, who wants to buy it at a low price and use the cash to fix FIAT. But everybody knows this, which gives leverage to the VEBA.

  • avatar
    probert

    Marchionne told the LaPresse news agency, concerning the UAW trust’s suggested price, “They should buy a lottery ticket.”

    he should buy another company and/or STFU.

    • 0 avatar
      th009

      Marchionne has a history of accepting gifts (whether from GM, Italian taxpayers or US taxpayers). In this case VEBA appears to be unwilling to give away their shares at fire sale prices.

      If Marchionne really thinks VEBA is way overpriced, and he doesn’t mind paying market price (and lawyers) after the IPO, he can just wait and buy the shares on the open market.

      We’ll see how that works out.

      • 0 avatar
        danio3834

        Negotiation is tough. Especially when you’re trying to buy shares of a company at the lowest price possible that increase in value as a direct result of your own hard work.

        • 0 avatar
          billfrombuckhead

          I’m sure the workers appreciate your endorsement of their hard work. I know my Dad’s excellent UAW healthcare plan kept him alive another decade.

          • 0 avatar
            danio3834

            So when the company succeeds, the UAW get’s the credit. When it goes under, it’s all management’s fault. Got it.

            The consistency of your agruments remains untarnished.

          • 0 avatar
            28-Cars-Later

            Point and match, Danio.

          • 0 avatar
            billfrombuckhead

            It’s either all or nothing with you danio. The company and the workers have to work together.

            To paraphrase Churchill “unions are a terrible solution except for the other solutions.”

            I had Asia studies professor who said the moto of the Zaibatsu was “Give the workers little enough so that can’t live but just enough so they don’t die” That’s the globalist management philosophy.

            Interesting article in Salon about the “Conservative Mind” and “folk Darwinsism”. My mind is wired like a conservative and my life story says I should be a conservative but I know better from the school of hard knocks and reading the back pages of the newspaper. I know that markets are all fixed and that the “invisible hand” is insider trading or some other corruption. It’s in a companies best interest to screw over it’s workers and without any countervailing political power against them they wouldn’t pay more than subsistance wages if the they could.

          • 0 avatar
            billfrombuckhead

            I should be a conservative by life history and how my brain’s wired but I know better from the school of hard knocks and feel it’s a moral duty to fight my “folk Darwinist” impulses.

  • avatar
    Kenmore

    Why do hugely powerful CEOs want to look like molesters?

    F-in’ shave already.

    • 0 avatar
      Shawnski

      That would be too German, Ja? Marconnie, is a self styled type charectorized by most Italians. Excepting of course the very buttoned down and most exemplary Enzo Ferrari.

  • avatar
    mikey

    After a man reaches a certain age, you either have a beard,or you don’t. The four day growth thing just doesn’t work. Then theres the sweater,the guy needs to upgrade his wardrobe.

  • avatar
    Big Al from Oz

    Another link to our lovely UAW guys.

    Research? As usual you UAW guys lie and distort so the truth doesn’t come out. I suppose you think most are like you.

    What’s your answer to this one, more ‘UAW untruths’ so the public doesn’t realise you are screwing them.

    Oh, I’m not right wing, I’m as much anti Tea Party as I’m against fools that destroy businesses.

    http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2702188/

    • 0 avatar
      shelvis

      An Australian posting about the big bag UAW. You’re about as amusing as Bertel complaining from his Chinese stronghold.

    • 0 avatar
      shelvis

      Oh, and you may want to look into why Chrysler ended up with a VEBA as well.

    • 0 avatar
      ect

      Neither of these links has anything to do with the point of your initial post.

      You claim that the Chrysler VEBA is trying to force Fiat to buy the Chrysler shares at an “overvalued” price. You offer no evidence that the price they are asking is unrealistic – apart from the fact that the only buyer thinks it’s too high. Gee, what a revelation!

      VEBA and Fiat are negotiating, and engaging in the posturing that characterizes most negotiations. It’s that simple. If they agree a price, that price wil be the fair market value of the shares. If Chrysler goes to an IPO, the market will determine the price.

      I am not a “UAW guy”. I’m a professional and business executive, and have always been on the management side of the union-management divide. But I do understand capitalism, and this negotiation is capitalism in action.

      • 0 avatar
        Big Al from Oz

        It does.

        The people who control VEBA have significant influence within the UAW. Or they wouldn’t be there. It doesn’t matter if it’s Chrysler. The UAW still has the major controlling weight behind any VEBA decision.

        That’s not a hard concept to understand.

    • 0 avatar
      mikey

      @ BAFO…So essentially your calling me a liar?..

      Oh there is so much I could say. Trying to reason, with the unreasonable is an impossible task. I don’t know what makes me think that I can, when so many others have failed.

      • 0 avatar
        Big Al from Oz

        Yep

      • 0 avatar
        Big Al from Oz

        Mickey, you are trying to tell me the UAW or any union has ‘loaded’ any VEBA position?

        The UAW want to gain the highest price, I don’t disagree. But what is it worth? That’s the important question.

        From past decisions made by the UAW historically they are hardly what you could consider forward thinkers.

        I mean, really. You guys are buying and trying to sell the unsellable. As has been shown.

        We will see how much it’s worth soon enough, and maybe you’ll need to eat some humble pie. I’ll even buy the pie for you to gorge on:)

        Business is business and the UAW is a big failure at business.

  • avatar
    mikey

    The UAW health care trust owns 41.5% of Chrysler. The UAW/VEBA wants to sell their piece of Chrysler. The UAW/VEBA wants top dollar. Sergio doesn’t want to pay top dollar.

    I’m over simplifying things? Isn’t this the way we all do business?

    Sooner or later, their going to find some common ground.

    Sorry “ect” I’d hit the submit before I read your comment. You say it so much better

    • 0 avatar
      ect

      mikey, you’re exactly right. VEBA should want to sell, in order to create a diversifed pool of funds and reduce the risk of being dependent on the fortunes of Chryselr (which they can’t control).

      Fiat wants to buy, so they can access Chrysler’s cash. Each side understands the other’s motivation., as well as their own.

      The rest is negotiation.

  • avatar
    Lou_BC

    It would appear to be in both side’s best interest to come to a mutual agreement. It is highly unlikely that VEBA would get close to 5 billion on the open market and Fiat needs the stock to have access to Chrysler’s cash.

    • 0 avatar
      Pch101

      “It is highly unlikely that VEBA would get close to 5 billion on the open market.”

      I’d like to see the math that led you to that conclusion.

      In 2012, Chrysler produced net income of $1.67 billion. As of the first half of 2013, the company expects 2013 net income of $1.7-2.2 billion.

      Ford’s P/E ratio is currently a bit about 11. GM and Toyota are a bit under 13, and Nissan is around 9.5.

      If you apply a 9 P/E ratio (slightly worse than Nissan’s) to Chrysler’s most pessimistic net income projection ($1.7B), then you end up with a market cap of $15.3 billion. The VEBA currently owns 41.5% of Chrysler, which would place the value of its shares at around $6.3 billion.

      Unless the VEBA acquired shares in Peugeot by mistake, it has little reason to compromise.

  • avatar
    Big Al from Oz

    I think what some who blog on TTAC arent’ reading the comment made by Sergio, “They should buy a lottery ticket.” That is strong language for a person of his position to make. Politicking, likely.

    If one looks at what is going on within the UAW at the moment one would see a transition. I think the UAW’s olden days are over.

    The UAW are influencing this sale, if you want a better word ‘take over’. What does the UAW think of Sergio? I bet they would have a dartboard with his image on it. The UAW despise him.

    Sergio as no time for the UAW and disregards them and their views.

    Now when Sergio takes complete control of Chrysler what is at stake? Think about it, there’s a good chance Chrysler will end with a headquaters in Amsterdam or somewhere else in the Netherlands.

    Now, have a look a the VW deal the UAW are trying to make with the Germans and to top it off use the German Auto Workers model for management. The Europeans up until recently were mud to the UAW, what’s going on? Is King losing his control.

    The UAW are losing it. This is one of the last bastions of power they have and they don’t want to relinquish it.

    This VEBA deal is being controlled by the UAW. If you see what I see you will also see it isn’t in the best interest of the rank and file.

    It’s political. Chrysler will be completely Euro soon. Sergio already mention off shoring some production into Italy, a cheaper place to produce.

    The UAW like any institution puts the institution first, before Country and the people they are supposed to support. Did they support the rank and file. Have a look at some of the selfish forward thinking that has screwed over Detroit. How many members does the UAW have now compared to 30-40 years ago.

    But UAW supporters will blame all but themselves. The Big 3 and government aren’t much better, especially when they went to bed with them, also at the expense of others.

    @shelvis
    Australian? Yes. American? Yes.

    Also it doesn’t matter what and where I’m from. Soon you’ll be saying only Allpar people can comment on anything to do with Chrysler.

  • avatar
    Big Al from Oz

    This comment by Sergio says explains it “They should buy a lottery ticket.” This is strong language. Is it politicking? Yes.

    Some of you guys better look at the bigger picture of what is going on within the UAW. Are you blinded by devout loyalty?

    1. If Sergio buys out the rest of Chrysler what will happen?

    2. How well does the UAW get on with Sergio?

    3. Why is the UAW working with the German Auto Workers?

    Here’s an explanation. The UAW is using it’s influence to prevent Sergio from buying out Chrysler for 3 reasons, they despise him, they don’t want to have Chrysler move offshore (Netherlands) and the UAW want to retain their power (political).

    How good is the UAW going? Not well, up until recently the Europeans were mud to the UAW, now the UAW is allowing the adaptation of the German Auto Workers model to come into the US. How good is King doing for the devout followers?

    Why? Is the UAW losing control and influence?

    And Sergio, the UAW don’t like him at all. Why? Because he stands up to them.

    I think this overpriced sale is influenced by the UAW and not for the rank and file as some here believe. The UAW always looked after the UAW institution first, never the US or it’s rank and file.

    If it did there would be a different and larger US auto industry exporting more, maybe like the Germans who have a better model.

    Sergio will gain Chrysler, it will move offshore, with some jobs.

    This is why I hold the view I do on this issue, it goes a little deeper than we are looking after the rank and file.

    • 0 avatar
      billfrombuckhead

      You sure have a lot of inside information all the way in Australia and your obsession with the UAW sure is strange.

      • 0 avatar
        shelvis

        Indeed. Yet he still doesn’t understand the relationship between Chrysler retiree’s VEBA and the UAW or why Chrysler has a VEBA as opposed to the company controlling benefits.

    • 0 avatar
      ect

      As entertaining as conspiracy theories often are, they seldom have any firm basis in reality.

      In this case, VEBA wants to sell (for good reason) and Fiat wants to buy (also for good reason). They’re haggling over price. Period.

      • 0 avatar
        bobman

        Exactly my feelings too. The sooner they can sort this, and the court case, out, the better.

        They need to get back to the business of doing business. Like the repayment of the government loans, Sergio will be very happy to get VEBA sorted out and allow him to focus on the Fiat/Chrysler goal of becoming a major player in the automotive industry.

      • 0 avatar
        Pch101

        “They’re haggling over price. Period.”

        The great thing about the interwebs is that something as simple as a haggle over pricing can be turned into an elaborate, multiple-post conspiracy theory.

        It should be obvious that the members of the VEBA could sue the VEBA management if starts selling off its assets at a discount, and for no good reason.

        But the thing to add here is that while Fiat is under enormous pressure to buy, the VEBA is under no pressure to sell. If the value of Chrysler stock is expected to increase, then there is no need to sell it.

        The proceeds of the sale would have to be reinvested, and in this current market with high share prices, there may not be a better alternative. As I’ve pointed above, there is good reason to believe that the shares are already worth more than $5 billion.

        • 0 avatar
          bobman

          “As I’ve pointed above, there is good reason to believe that the shares are already worth more than $5 billion.”

          Is that true though? It’s a little confusing to me. I believe the sale VEBA shares are to be sold in two different ways. Part of the shares will be handled with the IPO and the market will determine the price.

          However, I think, there’s a part that Fiat has a right to purchase over the next few years. The valuation of those shares is to be determined using a different formula. That’s what the court case is about. Although the judge ruled in favour of Fiat
          regarding the formula used to calculate the price, he did not tell the VEBA folks to sell. There are obviously other factors that will come out in court. The experts seem to suggest a settlement, independently agreed upon by both, would be the best possible solution.

          • 0 avatar
            Pch101

            As I noted above, the shares are attached to a note that places a cap on the maximum purchase price. That cap grows at a compounded rate of 9% per year.

            As I recall, the VEBA is demanding that it be paid the maximum allowed at this time. Even if Chrysler pays the maximum, it would seem that it would be getting the stock at a slight discount.

            While I don’t blame Marchionne for trying to get a better deal, he is in a weak position and it seems that the VEBA has figured that out. The valuation that he wants is a lowball, and he’s in a hurry to save FIAT, while the VEBA doesn’t care (or need to care) about what happens to FIAT.

  • avatar
    Lorenzo

    In the bankruptcy, the VEBA was owed $10 billion by old Chrysler, and they took about $1.6 billion in cash, a note for $4.5 billion, and 67% of Chrysler stock that was worthless at the time. Sergio will, of course, take credit for the Chrysler turnaround, but the VEBA really stuck its neck out.

    After waiting four years, they want their money, the maximum allowed, instead of the lowball amount sergio offered. Based on the 3.3% earlier tranch now in litigation, he offered something like $1.7 billion, allowing him to merge Fiat and Chrysler, and issue an IPO for a new company registered in the Netherlands, effectively removing Fiat from the disaster that is the Italian economy.

    Given what he wants to do and the benefit to the Agnelli family holding company he ultimately works for, he needs to bite the bullet now, before interest rates on corporate borrowing dries up, or he won’t be able to afford the scheme he’s trying to pull off.


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