Chrysler IPO said delayed until 2014 over tax uncertainty

Staff Writer
Columbus CEO

(c) 2013, Bloomberg News.

MILAN — Chrysler Group's initial public offering has been delayed after the automaker wasn't able to resolve a routine tax issue quickly enough to complete the sale this year, two people with knowledge of the matter said.

Chrysler needs a letter from the Internal Revenue Service to clarify tax liabilities after the IPO, said the people, who asked not to be identified because the matter is private. It hasn't obtained that and didn't want to proceed without it, they said. Bank advisers were considering a valuation of about $10 billion for Chrysler, people with knowledge of the matter said last week.

The Chrysler board determined after speaking with the carmaker's underwriters that a share sale in 2013 is no longer feasible, Turin, Italy-based Fiat said in a statement Monday. Chrysler will continue to work on the IPO as required by a United Auto Workers medical trust, which is selling the shares, and an offering may be held in the first quarter, Fiat said.

"No assurance can be given as to whether or when an offering will be launched," Fiat, Chrysler's majority owner, said in the statement. "Any launch will be subject to market conditions and other relevant considerations."

Spokesmen for Chrysler and Fiat declined to comment on the tax issue.

Sergio Marchionne, chief executive officer of both carmakers, has been working to combine Auburn Hills, Mich.-based Chrysler with Fiat, which took control of the U.S. automaker as part of its 2009 bankruptcy. A United Auto Workers retiree medical trust and Fiat are disputing the company's value as Marchionne seeks to buy the union fund's 41.5 percent stake.

The trust is working to determine whether to sell its holding to Fiat directly or press forward with an IPO.

The $10 billion valuation was on the low end of a range from $9 billion to $16 billion, that would make the 41.5 percent of Chrysler owned by the United Auto Workers trust worth $4.15 billion, less than what analysts have expected Fiat to pay.

Chrysler had planned to begin formal meetings with potential IPO investors the first week of December, people with knowledge of the matter said last week.

"The IPO, as it was unfolding, wasn't a knock-out punch for either side," said Erik Gordon, a professor at the University of Michigan's Ross School of Business and Michigan Law School. "Each side was overly optimistic. It left both sides in a position where maybe it was better to keep talking."

Marchionne has offered the trust at least $1 billion less than what the labor group is asking, and said the UAW "should buy a ticket for the lottery" if it wants $5 billion or more.

In the IPO of the union trust's shares, Marchionne finds himself in the position of running the company that's being listed and also the controlling shareholder that's opposed to the IPO.

The trust needs to maximize the value of its stake to pay for retirees' medical care. It estimated in a filing last month that those costs will be $3.1 billion more than its assets are worth. Marchionne is eager to avoid over-paying so the carmakers have as much money as possible to invest in new vehicles.

JPMorgan Chase and Bank of America are leading the offering, with Goldman Sachs, Morgan Stanley, Barclays and UBS also serving as underwriters, people with knowledge of the matter said. Deutsche Bank is advising the union, another person said.