Whether Chrysler files its registration papers for an IPO this week or not is subject to debate, but the automaker will certainly register before the calender turns to October, according to CEO Sergio Marchionne. Marchionne is also the CEO of Fiat S.p.A. (ADR) (OTCMKTS:FIATY) (BIT:F), which owns 58.5 percent of Chrysler. The UAW’s Retiree Medical Benefits Trust owns the other 41.5 percent of the Detroit-based automaker.
Fiat interested in Chrysler
While Fiat S.p.A. (ADR) (OTCMKTS:FIATY) (BIT:F) is interested in purchasing additional shares in Chrysler, it doesn’t look as though that is going to play out as the company hopes. The filing with the U.S. Securities and Exchange Commission should put an end to the protracted legal battle between the Fiat and the UAW trust.
The Italian automaker has offered to buy another 9.9 percent, but the trust has rejected Fiat’s offered price. Fiat S.p.A. (ADR) (OTCMKTS:FIATY) (BIT:F) sued the trust in Delaware Chancery Court, but a judge has declined to establish a price.
Presently, there is a gap of around $200 million between the two parties. That gap is for the first 3.3 percent increment that Fiat is willing to pay for now. That would represent a gap of over $600 million for the entire purchase that Fiat is looking to make.
Marchionne on the trust
“We need to go through this process of determining value,” Marchionne told reporters in Italy Friday. “(The trust) have been very clear that they are not long-term holders of the assets. They want to monetize, so we need to find a way for them to exit in a way that does not create what I consider to be exceptionally high…expectations of value…The market will tell us. Let the market talk.”
The trust is in need of cash immediately given the fact that they must pay for the health care coverage of tens of thousands of retired UAW workers.
Fiat to become sole owner of Chrysler
The IPO will settle the matter of what the shares in Chrysler are worth, once an investment bank steps in and sets the price following a detailed accounting of the Chrysler’s finances. This is far from ideal for Marchionne, who still hopes that Fiat will become the sole owners of the company. Marchionne would like to fully integrate the two companies, allowing Fiat S.p.A. (ADR) (OTCMKTS:FIATY) (BIT:F) to be traded on the New York Stock Exchange.
Though Chrysler was bailed out by the U.S. government and Fiat S.p.A. (ADR) (OTCMKTS:FIATY) (BIT:F) in 2009, Chrysler is now the more valuable of the two companies.
“Really in my opinion it is beneficial to both sides to come to an agreement and avoid going through the market,” said Richard Hilgert, an analyst with Morningstar.
That, however, is looking less and less likely.