CHRYSLER'S STOCK SALE IS DELAYED UNTIL 2014
c.2013 New York Times News Service
DETROIT — Chrysler will not move forward with an initial public offering until next year at the earliest, giving its parent company, Fiat, more time to negotiate the purchase of a 41.5 percent stake held by a union health care trust.
Fiat said Monday that it was not “practicable” for Chrysler to proceed with the offering before the end of 2013.
The decision, which was made by Chrysler’s board, delays an effort by the United Automobile Workers trust to sell some of its holdings in a public offering. But the move could also jump-start stalled talks by Fiat to acquire the trust’s overall stake.
Fiat, which owns 58.5 percent of Chrysler, wants to buy the trust’s stake so it can complete a merger of the two auto companies. The trust has so far rejected the price offered by Fiat as too low. Earlier this year, the trust exercised its legal option to force a public offering that would allow it to cash out some of its Chrysler shares on the open market. Chrysler said in a regulatory filing on Monday that it planned to list its shares on the New York Stock Exchange under the ticker symbol CGC.
Now with the offering still months away, Fiat has an opportunity to reopen talks with the health care trust and possibly avoid a public stock sale altogether.
Sergio Marchionne, chief executive of both Fiat and Chrysler, is eager to acquire full control of Chrysler as soon as possible.
“If he can bring all of Chrysler under Fiat’s ownership, it will make for a stronger and more stable automaker,” said Karl Brauer, an analyst at the auto research firm Kelley Blue Book.
The trust received its 41.5 percent stake in Chrysler in the company’s bankruptcy reorganization as part of a government bailout during the financial crisis. The company had owed the trust cash and stock to cover medical care for its hourly retirees and family members.
Chrysler filed paperwork for a public stock offering in September at the behest of the health care trust, known officially as the Voluntary Employee Beneficiaries Association. But on Monday, Fiat said that the offering would not take place this year.
“Fiat remains supportive of Chrysler Group’s effort to meet its contractual obligation to the VEBA and expects Chrysler Group to continue working on the necessary steps to enable an initial public offering to be launched in the first quarter of 2014,” Fiat said in a statement.
Chrysler was bankrupt and gasping for survival in 2009 when Fiat agreed to take control of the company. The deal was brokered by the Obama administration, which was unwilling to bail out the automaker unless it teamed up with Fiat.
Since then, Chrysler has made a remarkable comeback. It paid back its government loans early and has become solidly profitable under Fiat’s stewardship. Marchionne still wants to buy the trust’s entire stake, but not at a price that could drain Fiat’s financial resources.
The stock offering is a bit of a gamble for both sides. Marchionne is hoping that the open market will set a price for Chrysler’s shares that will prompt the UAW trust to turn back to Fiat for a better deal. If the stock offering is ever priced at a higher per-share value, however, Fiat may be forced to relent and offer more.
“The UAW’s ownership stake costs him more to purchase with every solid sales report and positive headline,” Brauer said.
The stalemate over the trust’s stake in Chrysler is another piece of unfinished business left over from the government’s $80 billion bailout of the U.S. auto industry four years ago. Last week, the Treasury Department said it expected to sell the last of its stock in General Motors, the other Detroit auto company that was rescued by Washington, by the end of this year.