Under Pressure From UAW VEBA, Chrysler Files For IPO, Fiat Not Thrilled

TTAC Staff
by TTAC Staff

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 C hrysler 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.

TTAC Staff
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  • Motormouth Motormouth on Sep 26, 2013

    While it's understandable that the UAW VEBA is interested in getting top dollar for its shares, I think that offering a percentage as an IPO is only going to downgrade the value of those shares that it still holds as Fiat will be less interested in going ahead with a full buyout - particularly as buyers of shares in the IPO will demand a return on their investment, pushing buyout costs that much higher. So the VEBA has to balance any additional profit through the IPO with a possible drop in overall share values. Marchionne has already commented that Fiat does not have to have 100% ownership of Chrysler for the partnership to work. This is probably more brinkmanship than actuality, as I'm sure Fiat could well use some of the Chrysler windfall to spray at its under-performing plants in Italy, possibly using some cash to pay off unions and close the worst-performing plants (barring horse heads in beds, etc). Evidently the plant in Turin has, at points over the last few years, been operating at 10% of capacity. Can you hear the sucking sound of any profit going down the drain? It's a very interesting situation, though, particularly as Chrysler continues to perform well. Should sales start to tank (automotive is nothing if not cyclical), I would imagine that would persuade everyone to play nice and make an amicable deal. (BTW, anyone know how much Fiat is prepared to pay for the stock versus how much they're worth on the market? Has that been announced?)

    • Big Al from Oz Big Al from Oz on Sep 26, 2013

      Currently Fiat controls it finances and Chrysler does the same. In reality Chrysler doesn't control its money completely. Why? Because the same BOD is controlling both. Fiat already has the upper hand. Busting balls isn't going to help anyone. Just let the deal go through, at a reasonable price, not some ridiculous price. People trying to justify a incredibly silly price by stating its for the benefit of the UAW members are not looking at the situation clearly. That Frenchman controlling the sale is really an agent acting for the VEBA board who were selected by the UAW and court. He will do as told. Why? Because they are the ones who will be paying him for his efforts.

  • Bobman Bobman on Sep 26, 2013

    The model used up until now has been to ensure that Chrysler has the environment, tools and financial support to grow and contribute to the overall benefit of Fiat/Chrysler. Sergio has said from day one that he wanted to fully merge the companies into one. This has meant, investment, managerial focus and other resources have been directed towards Chrysler (possibly to the detriment of Fiat). It was thought that would provide the best return overall. Chrysler has benefited greatly from those investments. The IPO presents the possibility of two separate listings considering that the cost of forming one company would be prohibitive to Fiat. Quite obviously, this would have a very negative effect on Fiat’s expected return on its investment. Fiat would definitely change its approach to managing the relationship and ensure that any future product investment would be made to maximize Fiat's return and not necessarily taking into consideration what would be best for Chrysler. The IPO text points to this possibility. Although some are saying that it is just posturing, and Fiat needs Chrysler to survive, it is a very real possibility. Fiat can survive by changing the working model, the question would be how well can Chrysler do (remember, Fiat will continue to have managerial control). The result of the Daimler experience should be a good example of a company being starved of financial and technological support. I really hope that they can come to a solution that both can live with otherwise the biggest loser could be Chrysler.

  • ToolGuy North America is already the greatest country on the planet, and I have learned to be careful about what I wish for in terms of making changes. I mean, if Greenland wants to buy JDM vehicles, isn't that for the Danes to decide?
  • ToolGuy Once again my home did not catch on fire and my fire extinguisher(s) stayed in the closet, unused. I guess I threw my money away on fire extinguishers.(And by fire extinguishers I mean nuclear missiles.)
  • Carson D The UAW has succeeded in organizing a US VW plant before. There's a reason they don't teach history in the schools any longer. People wouldn't make the same mistakes.
  • B-BodyBuick84 Mitsubishi Pajero Sport of course, a 7 seater, 2.4 turbo-diesel I4 BOF SUV with Super-Select 4WD, centre and rear locking diffs standard of course.
  • Corey Lewis Think how dated this 80s design was by 1995!
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