By on December 23, 2013

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.

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6 Comments on “Fiat Resumes Negotiations to Buy Rest of Chrysler from UAW VEBA...”

  • avatar

    Gee, the VEBA is still $3B underfunded? Did the UAW have its eyes open when they negotiated this deal?

  • avatar

    Interesting situation. Each side is holding the other hostage. It may be worthwhile for Sergio to make vehicles here and export them to Europe to be sold under the Fiat name.

  • avatar

    @highdesertcat – IIRC, Chrysler does not have the excess capacity to do that. The EU has tariffs in place that would make it more costly to do just that. The most likely scenario is building Chrysler products in the EU to import to the USA.
    The double edged sword is that they need Chrysler money to fund any upgrades to Fiat plants whether or not they build new Fiats or new Chryslers.
    Fiat will buy out VEBA – worse case scenario is for 6 billion.

  • avatar

    … and the deal is done. Looks like a $4.3B total package, not as cheap as Marchionne wanted but still a good deal for Fiat.

    • 0 avatar

      Definitely a win-win scenario. Can’t help but believe that we’re in for a release of some great cars. This puts Fiat/Chrysler in a position where they can play with the big boys. I think the ten billion dollafr valuation is a very low estimation of the potential value. If it was valued at thirty billion when Daimler took them over back then, surely with the current momentum it will be worth at least that again. As European sales improve for Fiat, it will just be a matter of time before Sergio achieves his goal of becoming a major world player.

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