Sergio Marchionne And The UAW Play Poker. In The Pot: $ 5 Billion

After the U.S. and Canadian government are out of the car business, at least as far as Chrysler is concerned, Fiat will own 52 percent. Who owns the rest? A large chunk, 45.7 percent, is owned by the UAW. By the UAW’s VEBA healthcare fund, to be exact. And the union is in no great hurry to change that. The UAW has a big “HOLD” on their share of Chrysler, hoping that the value goes up. That’s what “two people familiar with the fund’s strategy” told Reuters today.

The fund has several obvious options for cashing out.

• They could sell their shares to an outside investor, if they find one.
• They could sell their shares to Fiat, if Fiat is interested.
• They could also wait until an IPO and sell their shares in the open market.
• Currently, the best strategy appears to do nothing.

Under the 2009 agreement with the U.S. Treasury, VEBA’s proceeds from a sale of its Chrysler stake are capped at a “threshold amount.” The amount was $4.25 billion in 2009. It grows at 9 percent compound annual interest.

A source with a calculator told Reuters that that cap on the union’s payout has risen to nearly $5 billion. Fiat paid the U.S. government $500 million for a 6 percent share. That puts a $3.8 billion valuation on the UAW holdings. The union has an interest in maximizing their return. Let’s say they find a buyer, then they would like to see $ 5 billion now, or nearly $5.5 billion in a year.

That’s not a bad investment. It also is a great bargaining chip. “The slower approach by the UAW’s healthcare trust fund means the autoworker’s union may have a major holding in Chrysler as it opens a crucial round of contract talks this summer,” says Reuters. “The union is seeking to win back some concessions it made during the 2007 negotiations.”

Sergio Marchionne said that an IPO would be the “most efficient” way for the UAW. But, “if VEBA finds a buyer for the position and Fiat accepts the buyer as the holder of the stock, there’s nothing that would require an IPO,” Marchionne told reporters. Sergio also knows how to play poker. He will deny a buyer if there’s not enough above the threshold amount. If the unions get too aggressive in their bargaining, the stock will yield less in an IPO.

Today, Marchionne said that a public share offering for Chrysler is more likely to occur in 2012 than this year “because the automaker needs a longer track record of performance,” Reuters report s.

This will stay interesting for a while..