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Chrysler hits brakes on IPO

by Lou Whiteman  |  Published November 25, 2013 at 1:50 PM
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Chrysler Group LLC's majority owner said Monday that the company would not return to public markets in 2013, a blow to the union-run healthcare trust that owns a sizable stake in the U.S. automaker.

Auburn Hills, Mich.-based Chrysler filed preliminary initial public offering paperwork in September amid a conflict between majority owner Fiat SpA and the United Automobile Workers-run Voluntary Employee Beneficiary Association, or VEBA.

Reports have surfaced in recent weeks that the company could go public in early December, but Fiat in a statement Monday said that Chrysler's board, in consultation with underwriters, have determined it "will not be practicable" for the automaker to go public before year's end.

Chrysler emerged from Chapter 11 protection with financial support from Fiat as part of a complex deal that has resulted in the Italian carmaker steadily increasing its ownership to 58.5%. The VEBA, a trust established in 2007 to pay retiree healthcare costs, owns the remaining 41.5%.

Fiat has been seeking to bring Chrysler in-house as a wholly owned unit, but the company to date has been unable to reach an agreement with the VEBA on a valuation of the remaining trust-owned shares. Combining the two companies would allow Fiat to access Chrysler's cash reserves to fund operations and make it easier for the Italian company to cut back-office costs through further integration.

The delay is a victory for Sergio Marchionne, CEO of Fiat and Chrysler. Recent reports indicated that bankers were valuing Chrysler at about $10 billion, which would have valued the VEBA stake well below the $5 billion the trust had hoped to fetch in a sale.

Auto sources said that with the U.S. Treasury seeking to exit its investment in Chrysler crosstown rival General Motors Co. before year's end there could be a glut of new auto shares on the market in December, which could further depress Chrysler's valuation. Those fears likely put a damper on the VEBA's enthusiasm for a quick IPO.

Fiat and Marchionne are seen as eager to avoid an IPO, which would delay a full integration of the two companies. Outside investors also introduce new risks to Fiat's strategy, as they could advocate a Chrysler strategy other than combining with Fiat or at least demand the Italian company pay up for the stake.

Many industry watchers continue to say they believe the two sides will work out a deal prior to an offering.

Fiat in its statement Monday said that it "remains supportive" of Chrysler's effort to meet its contractual obligations to the VEBA, and said it expects Chrysler "to continue working on the necessary steps to enable an initial public offering to be launched" in the first quarter of 2014.

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Tags: Chapter 11 | Chrysler Group LLC | Fiat SpA | General Motors Co. | IPO | Sergio Marchionne | U.S. Treasury | United Automobile Workers | VEBA | Voluntary Employee Beneficiary Association

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Lou Whiteman

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