Bloomberg is reporting that Fiat CEO Sergio Marchionne has resumed talks with the UAW’s retiree health care trust (aka VEBA) to buy the 41.5% of Chrysler that the Italian automaker doesn’t yet own. Fiat executives met last week with the trust’s representatives. The proposed initial public offering of Chrysler stock has been delayed for tax reasons until next year, creating a window of opportunity for a deal. Differing valuations on the stock prompted VEBA’s demand for the IPO, which would establish a market price for the stock, most likely more than Marchionne and the Agnelli family that controls Fiat want to pay.
Fiat recently upped its offer, the first it has made since August. That offer was rejected but apparently the parties are close enough that negotiations have resumed. According to Bloomberg’s sources, advisers to the IPO estimated a market valuation of approximately $10 billion for Chrysler. Based on those estimates, Fiat is said to be offering about $4.2 billion, while the trust wants at least $5 billion. While $800 million is still a lot of money, the two parties are closer than ever before. Fiat does have the right to buy the remaining stake for about $6 billion so it’s not as though a corporate raider is going to swoop in and snatch the rest of Chrysler from Marchionne’s grasp, but the Fiat CEO doesn’t want to overpay.
Marchionne wants to merge Fiat and Chrysler to be able to compete with larger global rivals, and also so that Fiat can access Chrysler’s profits to help them weather the weakness of Fiat’s core market in Europe and develop replacements for their aging product line there. The more Fiat pays for the remaining share of Chrysler the less cash the merged company will have for product development on both sides of the Atlantic Ocean.
On the other side of the negotiating table, the health care trust is holding out for a maximum payout, particularly since a recent analysis says that their anticipated costs to provide health care to Chrysler UAW retirees will still exceed VEBA’s current assets including the 41.5% stake in Chrysler by more than $3 billion.
Representatives for Fiat and Chrysler officially declined to comment.