Chrysler IPO pushes Fiat’s buttons
BY TIM NICHOLSON | 26th Sep 2013
Fiat owns 58.5 per cent of the American company and had been planning to buy out the remaining 41.5 per cent from the United Auto Workers (UAW) union, but the Italian car-maker has reportedly deemed the $US5 billion asking price too expensive.
The UAW trust then put pressure on Fiat Chrysler Group CEO Sergio Marchionne by exercising its right to allow Chrysler to move forward with the IPO, a clause that was put in place during Chrysler’s government-led bankruptcy in 2009.
If the IPO goes ahead and Chrysler shares go public, it could delay or end Mr Marchionne’s plans to fully merge the two car-makers. Fiat requires complete ownership of Chrysler to pursue its bullish recovery and expansion plans through the use of the US company’s cash.
It is believed Mr Marchionne is offering the UAW at least $US1 billion less than the $US5 billion it wants for the remaining share.
A number of bankers and analysts have said the decision by the UAW is a move to push for a better offer from Fiat, but that the IPO will never actually go ahead.
Other reports suggest Mr Marchionne is allowing the IPO to go ahead to get investors to determine Chrysler’s value, before pushing ahead with a full merger.
Fiat’s reaction to the IPO filing has been strong, with Bloomberg reporting that the Italian company is re-evaluating its Chrysler alliance forged in 2009 when Fiat took a majority control of the American car-maker in the global financial crisis.
“Fiat has informed us that it is reconsidering the benefits and costs of further expanding its relationship with us and the terms on which Fiat would continue the sharing of technology, vehicle architectures and platforms, distribution networks, production facilities and engineering and management resources,” Chrysler said in its filings with the US Securities and Investments Commission.
The IPO will be underwritten by JPMorgan and is estimated at around $US100 million. The UAW trust reportedly will use the proceeds from the IPO to fund the medical benefits of Chrysler retirees.
Improved sales and profitability has pushed Chrysler’s valuation to around $US10 billion, meaning the tables have turned, with the Pentastar brand now propping up Fiat.
The two companies still manage their finances separately, but a merger would help integrate the two cash pools, giving Fiat more money to boost its product line-up.
If the merger goes ahead, the Fiat Chrysler Group will be the seventh largest automotive group in the world, behind giants such as Toyota Motor Corp, General Motors and the Volkswagen Group.
Meanwhile, the Fiat Chrysler Group has reportedly pushed back the re-launch of the Alfa Romeo brand in the US and Canada to the second quarter of 2014.
Fiat plans to push Alfa as a premium brand in North America, with Mr Marchionne confirming at the Detroit motor show in January that the lightweight 4C coupe would go on sale in the US later this year.
Fiat returned to the US market in 2011 after a 27-year absence, launching its Mexican-built 500 light car that has sold consistently since arriving.
