After Fiat and Chrysler’s retired UAW workers’ health care benefits trust were unable to agree on a price for the Voluntary Employees Beneficiary Association‘s 41.5% share in the Auburn Hills automaker, at the trust’s request Chrysler has filed initial paperwork for a public stock offering to sell part of the VEBA’s stake, about 16% of overall Chrysler shares, the first time in over a decade that the public will be able to own shares in Chrysler, which formerly was wholly owned by Cerberus and before that Daimler. Fiat certainly would rather the IPO not take place now as it complicates Fiat and Chrysler CEO Sergio Marchionne’s plans for the Italian automaker to acquire full ownership of Chrysler. The benefits trust has the legal right to force Chrysler to make the stock offering so the VEBA can cash out on the shares it received in exchange for giving up financial claims against Chrysler during the company’s bankruptcy and bailout by governments in the United States and Canada.
Not only does the VEBA have an opportunity to get a windfall of cash, a billion dollars or more, it also gets a chance to let the open market decide on the value of the remaining ~25% of Chrysler it will still own after the IPO, as the trust continues to negotiate with Fiat. Some automotive industry pundits see the request for the IPO as a tactic by the trust to get a higher price from the Italian car company. “It’s a very, very high-stakes battle going on here,” said Harley Shaiken, a professor of labor at the University of California-Berkeley. “Both sides are being quite strategic, and we’ll see how it plays out.” Marchionne told analysts earlier this year, “Fiat remains available to continue the discussion.”
In the background there is also an ongoing court case over the valuation of the trust’s stake, said by Fiat to be worth $3 billion and by the VEBA significantly more than that.
There are risks in an IPO for all three parties, the VEBA, Chrysler, and Fiat. Possible investors might shy away since the logical buyer, Fiat, won’t be participating. That could depress the stock value, which wouldn’t be a good thing for Chrysler, or for the matter, Fiat, which owns the other 58.5% of Chrysler.
The IPO would not change Fiat’s control over Chrysler, but without 100% ownership, Fiat cannot tap into the cash reserves Chrysler has banked on its success since the bankruptcy. In the second quarter of 2013, Chrysler profits were over half a billion dollars, up 16% from the same quarter in 2012. Those revenues have helped offset weakness in Fiat’s main market in Europe.
The JPMorgan Chase bank will be underwriting the I.P.O.