By on October 16, 2013

vebafiatchrysler

Fiat will have almost a year to negotiate a price for the 41.5% of Chrysler that is owned by the UAW employee health benefits trust. That’s because the Delaware Court of Chancery set a date in September of 2014 for the lawsuit Fiat has filed against the trust, known as VEBA, to determine the sale price.

 

Judge Donald Parsons split the difference between the UAW’s preferred date of January 2015 and the May trial that Fiat requested. Fiat even offered to fly executives from Italy for depositions to speed the process. After the scheduled five day trial closes, the judge will likely issue his ruling within 90 days.

The UAW’s trust became Chrysler’s second largest shareholder in exchange for foregoing future health care payments. The VEBA now wants to cash out to fund the health benefits. Fiat CEO Sergio Marchionne is also interested in cash, the cash Chrysler is generating. Fiat’s sales are concentrated in Europe, where the car market continues to be weak and Marchionne needs access to Chrysler’s cash. Some analysts say that without Chrysler’s money, Fiat has no future.

The trial will have jurisdiction over the first of five call options that would allow Fiat to acquire 16.6 percent of Chrysler over time. In total, the difference between the two sides could amount to more than $1 billion. Earlier, Fiat valued a 54,000 share tranche of stock at $139.7 million while the trust put the value of those shares at $343.1 million.

It is assumed that if Fiat and the VEBA do not arrive at an agreed upon price by the start of trial, Judge Parsons ruling will likely establish a price for the remaining 25% of Chrysler stock whose value will not be adjudicated in the trial.

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31 Comments on “Trial to Set Price Fiat Will Pay VEBA for Chrysler Shares Scheduled for Sept. 2014...”


  • avatar
    Lorenzo

    Well, everybody was right – the IPO was always a non-starter. I can’t escape the feeling, though, that Chrysler is headed for another near-death experience, and this one might be the one that finally kills it off, coming so soon after the Daimler plundering and Cerberus mismanagement. Lee Iacocca had two decades to turn around what was then a much larger company before the “merger of equals”. Marchione is poised to complete the task in a quarter of the time.

    • 0 avatar
      rpol35

      I had to think about your comment a bit and I think you are right. The unfortunate aspect is that Chrysler won’t die from its own doing (or internal undoing), it has proven itself to be successful once it has access to capital for product development.

      Fiat’s implosion is what will become the death knell for Chrysler. As the author states, “Some analysts say that without Chrysler’s money, Fiat has no future.” I take that to mean, from Fiat’s perspective, “We have ruined one car company, let’s bleed off Chrysler’s cash and kill another.”

      At least Daimler AG and Cerberus are still in business; Fiat appears to be approaching, if not yet knocking, on death’s door.

      • 0 avatar
        bobman

        Hey, rpol35; You need to broaden your reading a little more.

        Fiat doesn’t need Chrysler to survive. However Fiat and Chrysler need each other if they’re going to compete in the world markets. This isn’t a Fiat vs. Chrysler thing. It’s finding the best solution for VEBA to monetize their stake so that Fiat/Chrysler can carry on with their plan to become contenders in the world auto industry.

        Fiat’s problems in Europe will be sorted out by Fiat as the economy there improves and new models are introduced.

        • 0 avatar
          th009

          As new models are introduced? Fiat’s new model pipeline is pretty much dry, and the models being sold in Europe are rather elderly (excepting the Maserati and Ferrari exotics).

          Marchionne has squeezed the money out of new model development and painted himself into a corner. Now he desperately needs Chrysler’s cash pile (and cash flow) to rebuild Fiat.

        • 0 avatar
          rpol35

          If you are so well informed bobman, enlighten me! I mean I assume you would then direct the same comment to the author, after all I didn’t claim that, “Some analysts say that without Chrysler’s money, Fiat has no future.”

          As for your statement regarding, “It’s finding the best solution for VEBA to monetize their stake so that Fiat/Chrysler can carry on with their plan to become contenders in the world auto industry.” I’d say that is naive at best. It’s more about the UAW monitizing their investment in a maximum way than it is to become, “contenders in the world auto industry”.

          Don’t believe me, read the article again, it states specifically that the biggest difference between the Trust & Fiat’s outlook is a little difference of $203.4 MM in stock valuation and that’s only one tranche.

          • 0 avatar
            bobman

            I don’t have the time to gather the links for you, however a quick search on the web will provide you with many different analyst views. If this is only site that you reference for information on the Chrysler / VEBA stock dispute, then your view is limited.

            Happy reading

          • 0 avatar
            Pch101

            The difference in valuation between Fiat and the VEBA amounts to more than a billion dollar.

            This is a dispute over money. Fiat is lowballing, but the VEBA is holding the cards.

          • 0 avatar
            th009

            UAW doesn’t have any investment in Chrysler. However, retired UAW workers do, through their VEBA.

            There is a difference.

          • 0 avatar
            rpol35

            OK bobman, proof is in the pudding; here’s three different articles on the topic and not a one of them changes my mind over what the TTAC staff writer wrote or the point that I tried to make earlier.

            It’s nothing more than an attempted money grab by Fiat and VEBA holding out for a maximum payout.

            If you disagree, please provide some fact.

            http://money.cnn.com/2013/09/23/investing/chrysler-ipo/index.html

            http://www.reuters.com/article/2013/10/09/us-autos-chrysler-ipo-idUSBRE9981D520131009

            http://www.moneynews.com/Companies/Chrysler-auto-maker-IPO-initial-public-offering/2013/09/24/id/527321

          • 0 avatar
            bobman

            Hey rpol35.
            I was just on my way up to bed when I noticed your post. I figured, since you took the time to find those articles, I should reply. I have been following the Fiat saga since Sergio took over. When Chrysler came into the picture it also became part of my morning news fee.

            I read the three articles you posted. The first thing I noticed is that they were about the IPO. The article here is about the trial for the five tracts (total 16.5% in 3.3% increments over 3 years) that Fiat has a call option on. The trust must sell those to Fiat at an agreed upon price. The price calculation formula was also stipulated in the initial agreement. Fiat’s calculation was X while the VEBA’s calculation was NOT X. The agreement stipulated, if a price could not be agreed upon, a court would settle the matter. Fiat initiated court proceedings to determine the price since they couldn’t come to an agreement. That’s what this article is about. Not the IPO. This portion of the shares was never meant to be determined by market value. However, like the IPO, it is thought that the valuation of these shares would help to determine the value of the entire VEBA stake. BTW, my understanding is, the judge ruled the formula used by Fiat was correct.

            The IPO, which is also in the news at the moment, involves the remaining 25% ( or a portion of ) that VEBA holds. Again, the thinking is that a valuation of those shares could also be used to determine the total value of VEBA’s shares.

            It’s complicated because within this framework exists many possible approaches and outcomes. That’s why I said that a search on the web will provide you with many different views from analysts. The ones you believe depend on your own biases. The truth will depend on future outcomes. My personal belief is the statement you quoted from the article “Some analysts say that without Chrysler’s money, Fiat has no future.” is so vague that it doesn’t make for a good precedence for your conclusion which was “We have ruined one car company, let’s bleed off Chrysler’s cash and kill another.”
            My two cents.
            Anyway. Goodnight rpol35.

          • 0 avatar
            rpol35

            Bobman:

            One more run at it and I’ll let it go.

            I’m good with your two cents.

            Nevertheless, there is a continuing thread through all of these articles, a commonality really, which states the same point, that being Fiat is in trouble and needs Chrysler’s cash and Sergio obviously wants it for less, not for more. I think it has more to do with pure survial for Fiat than any other driving issue.

            While I’ll admit my claim is a bit hyperbolic, remember, Chrysler has had a very hard way to go with two prior, disengenuous suitors, neither that had any concern for Chrysler’s best long term interest.

            As for my bias, there is none. The three articles that I selected were done randomly but they all harp on a centrally related theme, access to Chrysler’s cash. I too have been following the Chrysler/Fiat hook-up since late 2009 and I have never read a single article from any supposed informed source that didn’t portray this union as anything other than a gift to Fiat from the U.S. Treasury department and access to Chrysler’s spoils. Admittedly, Fiat had to invest in Chrysler as they were down for the count in 2009; they have done that and now, in the name of saving the mothership, they want to collect the dividend. My fear is that they will leave Chrysler for dead on the side of the road once they’ve gotten the combination to the safe. Fiat is trying now to do that and the’ve run into a big problem with the VEBA, a more obstinate problem than probably originally envisioned.

            Over and out.

          • 0 avatar
            Pch101

            Chrysler and Fiat aren’t large enough to survive independently over the long run. As the automotive industry becomes more globalized, automakers need scale in order to be competitive. Both Chrysler and Fiat need a partner.

            Over the short run, Fiat would certainly benefit from Chrysler’s balance sheet and operations. But that doesn’t change the fact that both companies need each other.

            There’s no strip and flip here. Fiat needs Chrysler’s US market presence and scale. Chrysler needs competent management and shared R&D. It’s a symbiotic relationship; without this merger, both of them would be dead.

          • 0 avatar
            bobman

            Okay, gotcha.

            One last thing. I think Fiat should pay the VEBA what they want and get them the hell out of their boardroom, like they did with the government by paying off their loans ASAP. This whole thing is stopping Fiat/Chrysler from making some very important decisions regarding investments. This will affect the future performance of the company. It would surely be a good riddance.

  • avatar
    Landcrusher

    I don’t get it. Why is it the court has to get involved? If the buyer won’t pay, find another buyer? If the seller won’t sell, raise the offer?

    • 0 avatar
      Lorenzo

      You have to realize, when the government took over and gave Chrysler away, they really gave it away. Instead of cash, the VEBA got stock in a moribund company, but it was bound by the government’s agreement with Fiat, first for Fiat to get the government’s stock, and then get the VEBA stock through call options. The VEBA doesn’t want the stock, it wants cash to pay the benefits, but it has to sell to Fiat through the call options.

      • 0 avatar
        Landcrusher

        So if its not public, they really have no market to determine the price, but it likely can’t go public without this resolved?

        • 0 avatar
          Pch101

          The VEBA has the contractual right to have an IPO of some of its shares. Fiat would prefer to avoid that, presumably because Fiat is lowballing and wants to buy the VEBA shares at a price that allows Fiat to flip them for a profit.

          • 0 avatar
            Landcrusher

            Then why doesn’t VEBA IPO its shares? Does Fiat have some way to stop them? It seems to me that the agreement was badly written and some lawyers and consultants ought to be getting sued.

            That’s where I keep getting stuck because either you can sell something to the highest bidder, or you can’t. If you can’t, then its questionable if you really own it. So, if I am VEBA, I gotta be thinking my advisors were negligent.

          • 0 avatar
            Pch101

            “Then why doesn’t VEBA IPO its shares?”

            The VEBA is working on it. But the VEBA can’t IPO all of its shares, just some of them.

            “Does Fiat have some way to stop them?”

            Fiat can’t stop a partial IPO. But Fiat does have a call option on some of the shares, which made this lawsuit inevitable in the event of a pricing dispute.

            “It seems to me that the agreement was badly written”

            I don’t see the problem. On one hand, the VEBA was a creditor in the Chrysler bankruptcy and required some sort of security. On the other hand, Fiat wanted the opportunity to exercise ultimate control over the stock if the company became successful. This sort of arrangement was logical, and Fiat wouldn’t be in this position if it wasn’t trying to buy the shares at a discount.

          • 0 avatar
            Landcrusher

            I suppose I should have gone into finance rather than trying to do something useful. Seems to me Finance has become like law. It’s become it’s own language and custom so full of bad habits it no longer makes sense to us who haven’t drunk the kool-aid.

            Thanks, for your help though, PCH.

          • 0 avatar
            Pch101

            This is not an esoteric finance issue.

            In order to get the Chrysler bankruptcy to succeed, the VEBA needed to get on board with it.

            But there was very little money to pay to the VEBA, since the lion share of the cash was going to the secured creditors.

            That made it necessary to compensate the VEBA with shares, and a lot of them.

            If Fiat wants to control the company, then it would help if it owned the VEBA’s shares. Fiat wants to buy them at a discount. There aren’t any complicated finance issues with this; it’s just a dispute over the price.

  • avatar
    Aleister Crowley

    Is Sergio holding back on the Cherokees to lower the price Fiat will have to pay for Chrysler? I wouldn’t put it past him.

  • avatar
    Lou_BC

    One could argue that once this deal goes through, Chrysler and Fiat will both die. Marchionne would like to move head office out of Italy to a more friendly jurisdiction like the Netherlands.

    • 0 avatar
      28-Cars-Later

      Please elaborate I like a good theory.

    • 0 avatar
      Pch101

      The Netherlands have favorable tax rules. Numerous companies maintain Dutch offices in order to tax advantage of those rules. The notion that Fiat would move to the Netherlands for the purpose of dismantling itself is completely absurd.

    • 0 avatar
      Lorenzo

      No, he’s only going to incorporate the combined company in the Netherlands for tax purposes, just as Walter Chrysler incorporated in Delaware. The head office can be anywhere, but likely will be Auburn Hills, with a minor office and maybe design studios in Italy for the Fiat, Ferrari and Maserati brands, to mollify the politicians there and keep the “Italian” heritage of those brands.

      Fiat globally is following the “sold here, built here” philosophy, and Euro models are more cheaply built in Eastern Europe, so reducing the Italian footprint is the reason for the merger – to separate Fiat from Italy. Europe is a dying market, like downtowns were for department stores, and moving to the “suburbs” is what he’s trying to pull off.

      Never forget that Fiat is part of the Agnelli family empire, and they’ve been breaking it up while keeping control of the pieces, while also putting distance between their interests and the Italian economic/political mess, since the family members are spread out far beyond Italy. They apparently want their financial interests to go international too, and Chrysler represents a way to put some of their investments into a more stable market than Italy.

      If that’s not what’s happening, it would make a great novel/movie. Working title: “Escape From Euroland”.

      • 0 avatar
        Morea

        “the Fiat, Ferrari and Maserati brands” And Alfa Romeo, never forget Alfa Romeo.

      • 0 avatar
        Big Al from Oz

        Sergio wants out of Italy because of the ridiculous workplace relations that is impeding a more satisfactory improvement of the Italian situation. Italy is a mess, politcally, economically and with workplace reform. It’s a nightmare to operate any large industrial business. They should let it become 3rd world and controlled by the Mafia.

        Essentially Italy is controlled by poor governance.

        Sergio has influenced more flexible workplace arrangements, but they aren’t enough.

        Italy and many of the Mediterranean countries tried to emulate the lifestyle and standard of living of their northern neighbours, but can’t achieve them.

        Sergio wants to have complete control of Fiat. If and when Fiat and Chrysler unite into one business they will move to the Netherlands. Ram/Jeep/Dodge/Chrysler will become European.

        As I’ve stated Fiat and Chrysler are already controlled by the same people, who naturally are leaning towards Fiat control.

        Fiat/Chrysler will become the 7th or 8th largest auto manufacturer globally. But, like Pch101 stated this still isn’t large enough since you will see many larger takeovers within the auto industry until you end up with a few extremely large manufacturers.

        This debacle of the VEBA buyout isn’t just for the workers health. It’s more of a political game by the powerbrokers, ie, UAW, Fiat, etc.

  • avatar
    Big Al from Oz

    Fiat and Chrysler are controlled by the same people at the BoD level.

    Financial operations etc for Fiat are the same people at Chrysler. Don’t quote me on this but I think their are 12 people?

    Also, the VEBA BoD was selected by, you guessed it the UAW and the court in January 2010. Chrysler and Fiat had nothing to do with the VEBA board selection, the UAW had the most influence.

    The UAW don’t want Sergio’s influence to increase in the US. The UAW can use the argument they are in it for the Chrysler UAW employees. But as you can see historically the UAW tends to defend the institution of the UAW over the needs of the rank and file.

    Sergio wants to control and form one larger company.

    Sergio will achieve his goals. The UAW are trying to influence a price that is way to high. Its a joke.

    Remeber the agent dealing with the VEBA sale is just that an agent and he will provide advice, but will end up doing what is asked of him by the UAW controlled VEBA BoD.

  • avatar
    MLS

    For the love of god, would you please use the proper logo (i.e., the Pentastar) when referencing Chrysler Group instead of an outdated logo for the Chrysler brand?


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