Fiat SpA (BIT:F) is reconsidering its partnership with Chrysler Group LLC after the U.S. auto maker submitted its registration with the Securities and Exchange Commission (SEC) for a proposed initial public offering (IPO).
The Italian car manufacturer owns 58.5 percent of Chrysler Group LLC, and warned that it will cut its commitments to the U.S. automaker if the United Auto Workers (UAW) trust fund succeeds in selling its stake in the IPO. The UAW owns a 41.5 percent stake in the company.
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In its regulatory filing, Chrysler Group LLC wrote, “Fiat has informed us that it is reconsidering the benefits and costs of further expanding its relationship with us. This could include decisions on capital preservation and allocation, investments and locations of production facilities.”
The Italian automaker is also reconsidering if it will continue the terms of sharing its technology, vehicle platforms, engineering expertise and other resources with Chrysler.
Fiat wants to acquire the stake owned by UAW
Fiat SpA (BIT:F) wants to acquire the stake owned by UAW in Chrysler Group LLC. UAW demanded an additional $5 billion for its stock holdings, but the Italian automaker offered $1 billion less than what the trust demands. As a result, the trust decided to exercise its rights to protect itself by forcing the American automaker to file for an IPO.
Filing for an IPO is a strategy for UAW to get a better offer from Fiat
Analysts believed that filing for an IPO is a strategy for UAW to get a better offer from Fiat SpA (BIT:F). The trust wants to pressure Sergio Marchionne, CEO for both Chrysler and Fiat, to reach an agreement. According to many, a public offering will probably not happen given the resistance of the Italian automaker.
Marchionne engaged the services of Ron Bloom, a former auto task force leader, and chief architect of Chrysler’s bankruptcy restructuring in 2009 to advise Fiat SpA (BIT:F) in its negotiations with UAW.
In an interview with Bloomberg, Giuliano Noci, marketing professor at Milan Polytechnic said, “Marchionne is laying his cards on the table and very clearly explaining that a Chrysler IPO is not in Fiat’s interest as the ownership of Chrysler is crucial. He doesn’t hide his real intentions.”
On the other hand, Morningstar analyst, Richard Hilgert commented, “Fiat SpA (BIT:F) is saying that Chrysler is worth less if we don’t get that full integration. It’s a shot across the bow of the UAW.”
Marchionne previously stated that a public offering might take place in the middle of 2014, if it will push through. Chrysler did not indicate in its filing how many shares it intends to sell. UAW aims to use the proceeds from selling its stake in the company to pay for health benefits for Chrysler’s blue-collar retirees.