As UAW And Fiat Quibble, Chrysler Goes Ahead With Proposed IPO
Chrysler Group and Fiat S.p.A (OTCMKTS: FIATY) CEO, Sergio Marchionne, broke the news late Monday that Chrysler and the UAW VEBA Trust have filed the paperwork for an initial public offering to peddle a small percentage of Chrysler to the public. Just the proposal for an IPO is a sure sign that the company has come a long way since filing for bankruptcy in 2009. Then, it was saved by a government bailout that gave control of Chrysler to Fiat. Since, Chrysler has grown substantially and is once again a profitable entity. The initial public offering is valued at $100 million.
No one can deny that Marchionne has been good for the company, but one has to question the reason for the IPO. Along with the other two Big Three automakers, Ford (NYSE: F) and General Motors (NYSE: GM), the majority of Chrysler’s operations are unionized resulting in higher labor costs than other multinational automakers. In addition, the UAW Retiree Medical Benefits Trust owns the 41.5 percent of Chrysler not already owned by Fiat and it seems that Marchionne and Fiat are using veiled threats to force the UAW to go along with the IPO.
Fiat has informed us that it is evaluating the various potential impacts that a public offering and the consequential introduction of public stockholders may have on its views of the Fiat-Chrysler alliance, and as such, is considering whether or not to continue expanding the Fiat-Chrysler alliance beyond its existing contractual commitments.”
Marchionne and his team are more than keen to get their hands on the 41.5 percent and go forward with a Fiat-Chrysler alliance. They are hoping that an IPO will accomplish that, but Fiat and the trust cannot agree on a price. The UAW trust has established the value of the stake at $4.27 billion, while Fiat says its value is $1.75 billion. If the two cannot come together, there may not be an IPO.
It’s no secret that Fiat wants and needs the cash flow that Chrysler brings to the table. Fiat is having a tough time with a weak European market. The company wants to expand into a relatively strong Asian market, particularly China, where demand for their product could do much to ease the strain of the hefty inventory that Fiat is currently carrying. Right now, Fiat has a strong presence in Latin America, but would like to increase its footprint there as well. It will be much easier for Fiat to accomplish these goals if it has control of all of Chrysler’s cash.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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