Marchionne: No Deal Yet For VEBA Shares, Chrysler IPO Would Delay Fiat Merger

by TTAC Staff

Published: September 16th, 2013

marchionne no deal yet for veba shares chrysler ipo would delay fiat merger

On Friday, Sergio Marchionne, who heads Fiat and Chrysler, told reporters in Milan, Italy that he hasn’t gotten any closer to making a deal with the UAW’s retiree health care trust for Fiat to purchase the VEBA’s shares in Chrysler and take full ownership of the Auburn Hills automaker. The UAW health care trust owns 41.5% of Chrysler and the two parties have not been able to agree on a price. The trust is demanding $5 billion for its shares. Marchionne told the LaPresse news agency, concerning the UAW trust’s suggested price, “They should buy a lottery ticket.”

Marchionne said that though an initial public offering of Chrysler stock could delay a merger with Fiat, his team was preparing for such an IPO in order to comply with a request from the VEBA, which has the legal right to ask for an IPO. The filings with the U.S. Securities and Exchange Commission will be ready by the end of the month. Marchionne said that an IPO for Chrysler could be ready by the end of the year but that he thought that financial markets would be more receptive in the first quarter of 2014.

The Fiat CEO would rather buy the trust’s shares in a block rather than have to buy them back piecemeal from the public should the trust sell them on the open market.

After a July court ruling siding with Fiat over the VEBA concerning the price of a smaller tranche of Chrysler shares, the two sides have failed to agree on a price for the trust’s remaining stake.

#Chrysler #Fiat #SergioMarchionne #Uaw #UAWVEBA #VEBA

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12 of 47 comments

Lou_BC on Sep 17, 2013

It would appear to be in both side's best interest to come to a mutual agreement. It is highly unlikely that VEBA would get close to 5 billion on the open market and Fiat needs the stock to have access to Chrysler's cash.

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- Pch101 on Sep 17, 2013
  
  "It is highly unlikely that VEBA would get close to 5 billion on the open market." I'd like to see the math that led you to that conclusion. In 2012, Chrysler produced net income of $1.67 billion. As of the first half of 2013, the company expects 2013 net income of $1.7-2.2 billion. Ford's P/E ratio is currently a bit about 11. GM and Toyota are a bit under 13, and Nissan is around 9.5. If you apply a 9 P/E ratio (slightly worse than Nissan's) to Chrysler's most pessimistic net income projection ($1.7B), then you end up with a market cap of $15.3 billion. The VEBA currently owns 41.5% of Chrysler, which would place the value of its shares at around $6.3 billion. Unless the VEBA acquired shares in Peugeot by mistake, it has little reason to compromise.
  
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Big Al from Oz on Sep 17, 2013

I think what some who blog on TTAC arent' reading the comment made by Sergio, “They should buy a lottery ticket.” That is strong language for a person of his position to make. Politicking, likely. If one looks at what is going on within the UAW at the moment one would see a transition. I think the UAW's olden days are over. The UAW are influencing this sale, if you want a better word 'take over'. What does the UAW think of Sergio? I bet they would have a dartboard with his image on it. The UAW despise him. Sergio as no time for the UAW and disregards them and their views. Now when Sergio takes complete control of Chrysler what is at stake? Think about it, there's a good chance Chrysler will end with a headquaters in Amsterdam or somewhere else in the Netherlands. Now, have a look a the VW deal the UAW are trying to make with the Germans and to top it off use the German Auto Workers model for management. The Europeans up until recently were mud to the UAW, what's going on? Is King losing his control. The UAW are losing it. This is one of the last bastions of power they have and they don't want to relinquish it. This VEBA deal is being controlled by the UAW. If you see what I see you will also see it isn't in the best interest of the rank and file. It's political. Chrysler will be completely Euro soon. Sergio already mention off shoring some production into Italy, a cheaper place to produce. The UAW like any institution puts the institution first, before Country and the people they are supposed to support. Did they support the rank and file. Have a look at some of the selfish forward thinking that has screwed over Detroit. How many members does the UAW have now compared to 30-40 years ago. But UAW supporters will blame all but themselves. The Big 3 and government aren't much better, especially when they went to bed with them, also at the expense of others. @shelvis Australian? Yes. American? Yes. Also it doesn't matter what and where I'm from. Soon you'll be saying only Allpar people can comment on anything to do with Chrysler.

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Big Al from Oz on Sep 17, 2013

This comment by Sergio says explains it “They should buy a lottery ticket.” This is strong language. Is it politicking? Yes. Some of you guys better look at the bigger picture of what is going on within the UAW. Are you blinded by devout loyalty? 1. If Sergio buys out the rest of Chrysler what will happen? 2. How well does the UAW get on with Sergio? 3. Why is the UAW working with the German Auto Workers? Here's an explanation. The UAW is using it's influence to prevent Sergio from buying out Chrysler for 3 reasons, they despise him, they don't want to have Chrysler move offshore (Netherlands) and the UAW want to retain their power (political). How good is the UAW going? Not well, up until recently the Europeans were mud to the UAW, now the UAW is allowing the adaptation of the German Auto Workers model to come into the US. How good is King doing for the devout followers? Why? Is the UAW losing control and influence? And Sergio, the UAW don't like him at all. Why? Because he stands up to them. I think this overpriced sale is influenced by the UAW and not for the rank and file as some here believe. The UAW always looked after the UAW institution first, never the US or it's rank and file. If it did there would be a different and larger US auto industry exporting more, maybe like the Germans who have a better model. Sergio will gain Chrysler, it will move offshore, with some jobs. This is why I hold the view I do on this issue, it goes a little deeper than we are looking after the rank and file.

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- Billfrombuckhead on Sep 17, 2013
  
  You sure have a lot of inside information all the way in Australia and your obsession with the UAW sure is strange.
  
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- Shelvis on Sep 17, 2013
  
  @billfrombuckhead Indeed. Yet he still doesn't understand the relationship between Chrysler retiree's VEBA and the UAW or why Chrysler has a VEBA as opposed to the company controlling benefits.
  
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- Ect on Sep 17, 2013
  
  As entertaining as conspiracy theories often are, they seldom have any firm basis in reality. In this case, VEBA wants to sell (for good reason) and Fiat wants to buy (also for good reason). They're haggling over price. Period.
  
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- Bobman on Sep 17, 2013
  
  @ect Exactly my feelings too. The sooner they can sort this, and the court case, out, the better. They need to get back to the business of doing business. Like the repayment of the government loans, Sergio will be very happy to get VEBA sorted out and allow him to focus on the Fiat/Chrysler goal of becoming a major player in the automotive industry.
  
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- Pch101 on Sep 17, 2013
  
  @ect "They’re haggling over price. Period." The great thing about the interwebs is that something as simple as a haggle over pricing can be turned into an elaborate, multiple-post conspiracy theory. It should be obvious that the members of the VEBA could sue the VEBA management if starts selling off its assets at a discount, and for no good reason. But the thing to add here is that while Fiat is under enormous pressure to buy, the VEBA is under no pressure to sell. If the value of Chrysler stock is expected to increase, then there is no need to sell it. The proceeds of the sale would have to be reinvested, and in this current market with high share prices, there may not be a better alternative. As I've pointed above, there is good reason to believe that the shares are already worth more than $5 billion.
  
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- Bobman on Sep 17, 2013
  
  @Pch101 "As I’ve pointed above, there is good reason to believe that the shares are already worth more than $5 billion." Is that true though? It's a little confusing to me. I believe the sale VEBA shares are to be sold in two different ways. Part of the shares will be handled with the IPO and the market will determine the price. However, I think, there's a part that Fiat has a right to purchase over the next few years. The valuation of those shares is to be determined using a different formula. That's what the court case is about. Although the judge ruled in favour of Fiat regarding the formula used to calculate the price, he did not tell the VEBA folks to sell. There are obviously other factors that will come out in court. The experts seem to suggest a settlement, independently agreed upon by both, would be the best possible solution.
  
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- Pch101 on Sep 17, 2013
  
  @bobman As I noted above, the shares are attached to a note that places a cap on the maximum purchase price. That cap grows at a compounded rate of 9% per year. As I recall, the VEBA is demanding that it be paid the maximum allowed at this time. Even if Chrysler pays the maximum, it would seem that it would be getting the stock at a slight discount. While I don't blame Marchionne for trying to get a better deal, he is in a weak position and it seems that the VEBA has figured that out. The valuation that he wants is a lowball, and he's in a hurry to save FIAT, while the VEBA doesn't care (or need to care) about what happens to FIAT.
  
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Lorenzo on Sep 17, 2013

In the bankruptcy, the VEBA was owed $10 billion by old Chrysler, and they took about $1.6 billion in cash, a note for $4.5 billion, and 67% of Chrysler stock that was worthless at the time. Sergio will, of course, take credit for the Chrysler turnaround, but the VEBA really stuck its neck out. After waiting four years, they want their money, the maximum allowed, instead of the lowball amount sergio offered. Based on the 3.3% earlier tranch now in litigation, he offered something like $1.7 billion, allowing him to merge Fiat and Chrysler, and issue an IPO for a new company registered in the Netherlands, effectively removing Fiat from the disaster that is the Italian economy. Given what he wants to do and the benefit to the Agnelli family holding company he ultimately works for, he needs to bite the bullet now, before interest rates on corporate borrowing dries up, or he won't be able to afford the scheme he's trying to pull off.

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