Chancery Judge Rejects Fiat's Valuation of UAW VEBA's Chrysler Shares, Merger Delayed

Sergio Marchionne’s plans to merge Chrysler and Fiat have been delayed because Fiat failed to convince a Delaware Chancery Court judge to set the value of Chrysler stock owned by the UAW’s health care fund known as VEBA. Judge Donald Parsons rejected Fiat’s request to find that a call-option agreement covering at least 54,000 Chrysler shares valued the stock at slightly less than $140 million. That decision means that the dispute over the shares’ value will now proceed to trial.

According to Bloomberg Judge Parsons ruled that Fiat officials haven’t shown the union fund “is required to deliver the shares in return for Fiat’s payment of $139.7 million. It would be premature for me to enter an order requiring” VEBA to turn the stock over to Fiat.

The decision may in fact encourage the two parties to settle the dispute, now about a year old, out of court.

The court’s decision may push Fiat and the union’s trust to find an agreement on the shares and end the dispute over the value of the holdings that’s gone on for about a year. Analysts estimate that when that agreement is eventually made, it will cost Fiat about $4 billion to take full control of the Auburn Hills automaker.

Fiat now owns 58.5 percent of Chrysler. The UAW healthcare fund came out of Chrysler’s bankruptcy owning the remaining 41.5% of the company in exchange for the union taking on the responsibility of Chrysler UAW retirees’ health care. Those responsibilities had made the UAW one of pre-bankruptcy Chrysler’s largest creditors.

Fiat puts the value of the first tranche of available union shares at ~$140 million, about $200 million shy of the UAW trust’s valuation. On the UAW’s full stake, the difference could be as much as a billion dollars. Hence the parties’ presence in Delaware Chancery Court.