By on September 24, 2013


After Fiat and Chrysler’s retired UAW workers’ health care benefits trust were unable to agree on a price for the Voluntary Employees Beneficiary Association‘s 41.5% share in the Auburn Hills automaker, at the trust’s request Chrysler has filed initial paperwork for a public stock offering to sell part of the VEBA’s stake, about 16% of overall Chrysler shares, the first time in over a decade that the public will be able to own shares in Chrysler, which formerly was wholly owned by Cerberus and before that Daimler. Fiat certainly would rather the IPO not take place now as it complicates Fiat and Chrysler CEO Sergio Marchionne’s plans for the Italian automaker to acquire full ownership of Chrysler. The benefits trust has the legal right to force Chrysler to make the stock offering so the VEBA can cash out on the shares it received in exchange for giving up financial claims against Chrysler during the company’s bankruptcy and bailout by governments in the United States and Canada.

Not only does the VEBA have an opportunity to get a windfall of cash, a billion dollars or more, it also gets a chance to let the open market decide on the value of the remaining ~25% of Chrysler it will still own after the IPO, as the trust continues to negotiate with Fiat. Some automotive industry pundits see the request for the IPO as a tactic by the trust to get a higher price from the Italian car company. “It’s a very, very high-stakes battle going on here,” said Harley Shaiken, a professor of labor at the University of California-Berkeley. “Both sides are being quite strategic, and we’ll see how it plays out.” Marchionne told analysts earlier this year, “Fiat remains available to continue the discussion.”

In the background there is also an ongoing court case over the valuation of the trust’s stake, said by Fiat to be worth $3 billion and by the VEBA significantly more than that.

There are risks in an IPO for all three parties, the VEBA, Chrysler, and Fiat. Possible investors might shy away since the logical buyer, Fiat, won’t be participating. That could depress the stock value, which wouldn’t be a good thing for Chrysler, or for the matter, Fiat, which owns the other 58.5% of Chrysler.

The IPO would not change Fiat’s control over Chrysler, but without 100% ownership, Fiat cannot tap into the cash reserves Chrysler has banked on its success since the bankruptcy. In the second quarter of 2013, Chrysler profits were over half a billion dollars, up 16% from the same quarter in 2012. Those revenues have helped offset weakness in Fiat’s main market in Europe.

The JPMorgan Chase bank will be underwriting the I.P.O.

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19 Comments on “Under Pressure From UAW VEBA, Chrysler Files For IPO, Fiat Not Thrilled...”

  • avatar
    Big Al from Oz

    “Fiat is saying that Chrysler is worth less if we don’t get that full integration,” said Richard Hilgert, an analyst with investment research firm Morningstar. “It’s a shot across the bow of the UAW.”

    Not industrial politicking? Really. Looks like the UAW hasn’t done much forward thinking again.

    Yeah, guys, looks like you’ll buy me that drink :-)

    I suppose the UAW is the blind being lead by the blind.

    • 0 avatar

      Your comment is nonsense.

      The VEBA is negotiating to sell its shares at the highest possible price. Fiat is negotiating to buy those shares at the lowest possible price. Capitalism at work!

      Forcing an IPO filing is a pressure point that the VEBA has available. They’re using it. And so they should – it’s a part of any commercial negotiation to do so.

      Fiat needs to have 100% of Chrysler, the VEBA trustees know that, and they’re using their leverage to get a higher price than Fiat whas offered to date. This is hardly a lack of forward thinking, or evidence of “the blind being lead (sic) by the blind”. It’s plain common sense, and consistent with the fiduciary obligation of the VEBA trustees.

      Their is a lot to criticize about the UAW, to be sure. But this isn’t it.

      • 0 avatar

        When Al sees the word “union” appear in a post, he stops reading and goes for his anti-union cut-and-paste.

        He doesn’t really understand the basic business issues involved — that it’s a haggle and that the VEBA has most of the leverage — and I doubt that any explanations will help.

      • 0 avatar
        Big Al from Oz

        You guys really think the UAW isn’t involved in this process?

        Come on, really.

        • 0 avatar

          “Involved” is a broad word.

          The VEBA is a separate entity, managed by trustees. Those trustees have a fiduciary duty to act in the best interests of the VEBA. Regardless of who appoints or elects them. Frankly, I don’t know how they are selected, and for this purpose I don’t care. Because it doesn’t matter.

          Right now, the VEBA owns a single asset, which is shares in Chrysler. This reliance on a single asset is extremely unwise. So, to meet their fiduciary duty, the trustees should look to sell the shares – at the best price they can get – and invest the proceeds in a diversified portfolio that will ensure they can meet the needs of the members/beneficiaries. Very straightforward.

          In the real world, there are only 2 ways they can do this. Either sell to the majority shareholder (Fiat), or through an IPO. They are bound by contract (apparently) to explore the former option first, but have the right to compel Chrysler to do an IPO if that doesn’t work out.

          The VEBA trustees are not allowed to care which course they take. Their obligation is to get the highest price, whoever pays it. Which is exactly what they are trying to do.

          There is nothing in this that conjures up some unstated UAW plot to achieve god knows what. I have no idea what you imagine that might be, and I increasingly understand you don’t, either.

      • 0 avatar

        @ect since VEBA would still own ~25% of Chrysler after the IPO, wouldn’t it have a long term interest. Suggesting that the trustees are only interested in maximising short-term returns is incorrect.

        • 0 avatar

          Fiat wants to buy the shares, and pay the lowest price it can get the VEBA to agree to.

          The VEBA wants to sell the shares, at the highest price it can get someone (like Fiat) to pay.

          Pushing for a Chrylser IPO is the VEBA’s way of telling Fiat, that it’s not the only game in town, so if it wants the shares it had better pony up an attractive price. If Fiat and the VEBA agree on a price, the IPO won’t happen.

          If the IPO does happen, it will be a secondary offering of the shares now owned by the VEBA. “Fiat won’t participate in the IPO” means that, if the IPO happens, it will not offer to sell any of its Chrysler shares to public investors.

    • 0 avatar

      Ozzie’s incessant, “ I hate America” rants are only eclipsed by his “I hate the UAW “tirades.

      Mr. Ozone. I have a question for you. If your parents were to retire on stock they owned, would you want them to sell at the highest possible value, or would you want to have them sell at a lower value so a multi-millionaire could have more money or his company could have more money? I bet you will never answer this question. Mr. Ozone, see what happens when you let ideology drive your perception of reality.

      • 0 avatar
        Big Al from Oz

        I’m not anti American. Did I ever say get rid of full size trucks? NO. I actually happen to like them. But it appears I believe in freedom more than some.

        Generally when I receive a response like that it indicates to me that the person making that response is fearful of the world.

        So you live on stocks and bonds? It appears so and you are fearful of your existence. Like I stated I believe in freedom.

        Actually my parent (singular) does rely totally on stocks and probably more so on bonds.

        To screw over the public and to use your logic as a defence is exceptionally selfish.

        So, you would screw over your neighbour because you can and make a few bucks while doing it?

        What a really nice chap you are.

        You approach isn’t much different than how the Chinese run their country. Use laws and regulations to enhance us at the expense of others, even within our own country.

        • 0 avatar
          Big Al from Oz

          I will also retire with a substantial amount of money in stock and bonds, through funds.

          But their is a word called diversify.

          If you are that good at managing you money you would have done that.

          But, why is the US in it’s current state? Through poor decision and the wrong use of regulations.

          An issue as significant as this VEBA sale isn’t just about price like some are trying to make out. It’s also political.

          You obviously haven’t googled how these Union health funds work and who is controlling what.

          Or how the different changes over the past 6 years since the GFC have impacted them.

          When investing research is a fantastic tool. Once you start to talk like your language of ‘anti American’ then you have lost the plot on making an accurate assessment to make a decision on.

          Anti-American??? I’m an American. I just don’t have to agree with the way some business is done.

  • avatar

    Well, that should settle the dispute as to the price of the stock that Fiat wants to buy from the UAW VEBA. I see Fiat working out a deal with the UAW to buy shares directly. I dont think Fiat wants Chrysler to be publicly traded yet, at the very least there are probably some disclosures required by an IPO that Chrysler will have to make public regarding their operations that Maybe Fiat isnt ready to come forward with.

  • avatar

    If Fiat’s crazy enough to let the UAW float an IPO, it’s crazy enough to try and manipulate the value of it. Heck, some say it’s already trying to.

    Daimler-Benz looted Chrysler, then dumped it off on Cerberus and dim-witted Bob Nardelli to kill it. Only federal intervention pulled Chrysler back from the abyss. Marchionne sweet-talked his way into the deal for nothing. I don’t know what makes him think he’s going to get the rest of Chrysler for that — especially when healthcare for his entire UAW workforce FOREVER is going to be financed by the proceeds.

    • 0 avatar

      @ jrmobile…..That’s a pretty good analysis of the situation. Just one correction. VEBA finances just the retired UAW workforce. Its is however, a one shot deal. Once VEBA is funded then huge chunk of Chryslers legacy costs vanish forever.

      Marchionne and Fiat have done wonders in getting Chrysler back on its feet. That being said, I have to agree with “jrmobile” They are not going to get the rest of Chrysler for nothing.

      Love em, or hate em, fact is, the UAW through the VEBA fund have a 41.5 percent piece of Chrysler. They want to sell it for as much as they can get. Who wouldn’t?

  • avatar

    For fuck’s sake, why can’t anyone in the media use the proper Chrysler Group logo, i.e., the Pentastar? From the lowliest blogs on up to WSJ and NYT, everyone prints the Chrysler brand wings rather than the actual corporate logo. Here, TTAC isn’t even using the current wings logo. No one substitutes the Cadillac crest for the blue GM logo, so why should it be any different for Chrysler Group?

    Rant over.

  • avatar

    While it’s understandable that the UAW VEBA is interested in getting top dollar for its shares, I think that offering a percentage as an IPO is only going to downgrade the value of those shares that it still holds as Fiat will be less interested in going ahead with a full buyout – particularly as buyers of shares in the IPO will demand a return on their investment, pushing buyout costs that much higher. So the VEBA has to balance any additional profit through the IPO with a possible drop in overall share values.

    Marchionne has already commented that Fiat does not have to have 100% ownership of Chrysler for the partnership to work. This is probably more brinkmanship than actuality, as I’m sure Fiat could well use some of the Chrysler windfall to spray at its under-performing plants in Italy, possibly using some cash to pay off unions and close the worst-performing plants (barring horse heads in beds, etc). Evidently the plant in Turin has, at points over the last few years, been operating at 10% of capacity. Can you hear the sucking sound of any profit going down the drain?

    It’s a very interesting situation, though, particularly as Chrysler continues to perform well. Should sales start to tank (automotive is nothing if not cyclical), I would imagine that would persuade everyone to play nice and make an amicable deal.

    (BTW, anyone know how much Fiat is prepared to pay for the stock versus how much they’re worth on the market? Has that been announced?)

    • 0 avatar
      Big Al from Oz

      Currently Fiat controls it finances and Chrysler does the same.

      In reality Chrysler doesn’t control its money completely. Why? Because the same BOD is controlling both.

      Fiat already has the upper hand. Busting balls isn’t going to help anyone. Just let the deal go through, at a reasonable price, not some ridiculous price.

      People trying to justify a incredibly silly price by stating its for the benefit of the UAW members are not looking at the situation clearly.

      That Frenchman controlling the sale is really an agent acting for the VEBA board who were selected by the UAW and court. He will do as told. Why? Because they are the ones who will be paying him for his efforts.

  • avatar

    The model used up until now has been to ensure that Chrysler has the environment, tools and financial support to grow and contribute to the overall benefit of Fiat/Chrysler. Sergio has said from day one that he wanted to fully merge the companies into one. This has meant, investment, managerial focus and other resources have been directed towards Chrysler (possibly to the detriment of Fiat). It was thought that would provide the best return overall. Chrysler has benefited greatly from those investments.
    The IPO presents the possibility of two separate listings considering that the cost of forming one company would be prohibitive to Fiat. Quite obviously, this would have a very negative effect on Fiat’s expected return on its investment. Fiat would definitely change its approach to managing the relationship and ensure that any future product investment would be made to maximize Fiat’s return and not necessarily taking into consideration what would be best for Chrysler.
    The IPO text points to this possibility. Although some are saying that it is just posturing, and Fiat needs Chrysler to survive, it is a very real possibility. Fiat can survive by changing the working model, the question would be how well can Chrysler do (remember, Fiat will continue to have managerial control). The result of the Daimler experience should be a good example of a company being starved of financial and technological support. I really hope that they can come to a solution that both can live with otherwise the biggest loser could be Chrysler.

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