Fiat SpA (F) may have to wait until 2015 for a trial over the value of some Chrysler Group LLC shares owned by a union health-care fund, further delaying a plan to combine the two companies.
Lawyers for a United Auto Workers trust fund are asking Delaware Chancery Court Judge Donald Parsons to hold a January 2015 trial on the terms of a stock agreement covering at least 54,000 Chrysler shares, according to court filings. Fiat is seeking a May 2014 trial, according to the filings.
Sergio Marchionne, Fiat’s chief executive officer, wants to buy the shares as part of an effort to transform the two regional carmakers into a global auto producer. The trial will help determine how much the shares will cost, and that decision will clear the way for a complete integration of the companies.
“Delaying court hearing on the options is not good news,” said Philippe Houchois, an analyst at UBS AG in London, who estimates Turin, Italy-based Fiat may pay $4 billion euros to acquire full control of Chrysler. “Fiat will have to decide by the end of the year, when the UAW’s trust fund completes the initial public offering process, if buying the remaining holding at market price” and avoiding a Chrysler stock sale is worthwhile.
Fiat fell as much as 1.2 percent today to 5.76 euros in Milan, reversing an earlier gain. The stock has risen 53 percent this year, valuing the company at 7.23 billion euros ($9.49 billion). The shares closed down 4.5 cents to 5.78 euros.
The union’s proposal “would bring this matter to trial within a reasonable time that would allow the parties and this court to proceed at a suitable pace,” the trust’s lawyers said in a letter filed with the court yesterday in Wilmington.
Parsons refused in July to honor Fiat’s request to set a value on the shares without a trial. The judge ruled in Fiat’s favor on several claims affecting the value of the shares held by the trust. Fiat bought a stake in Chrysler in June 2009 after the Auburn Hills, Michigan-based carmaker sought bankruptcy-court protection from creditors.
A Fiat representative declined to comment on the trial-schedule proposals. Raymond DiCamillo, a Wilmington-based lawyer representing Fiat, didn’t immediately return a call today seeking comment.
The trial will focus on the agreement’s techniques for valuing the first segment of more than 270,000 shares the trust received when Chrysler emerged from bankruptcy in 2009.
Marchionne, who runs both Fiat and Chrysler, has spent the past four years seeking to unify the companies so they can better compete with Toyota Motor Corp. (7203), General Motors Co. (GM) and Volkswagen AG. (VOW) A fully integrated automaker would feature the mass-market Fiat, Chrysler, Jeep and Dodge brands, along with the high-end Maserati and Ferrari lines.
Fiat’s top executive has said the Delaware case will help set a value on the shares. Fiat wants to acquire the UAW’s entire Chrysler portfolio of 676,000 shares, or 41.5 percent of the carmaker, as part of its unification effort.
The UAW’s Retiree Medical Benefits Trust provides health-care services to more than 800,000 retirees and their dependents, according to the trust’s website. It’s the largest nongovernmental buyer of retiree health services in the U.S.
Marchionne has said Fiat may acquire the remaining stake just before a public listing of the holding. “It’s technically possible” that Fiat may buy out Chrysler as the initial public offering nears completion, the CEO said June 8.
Fiat’s review of the first block of union shares available for purchase pegged their value at about $140 million, according to court filings. The union trust countered that its calculations found the block was worth as much as $342 million.
Fiat has said Chrysler is worth $4.2 billion, according to court filings. The union has countered the carmaker is worth as much as $10.3 billion.
Fiat’s lawyers are seeking to have pretrial information exchanges done on an “unreasonable” schedule, given the number of documents to be turned over and depositions to be conducted, Ken Nachbar, one of the trust’s lawyers, said in a letter to Parsons.
He said some witnesses in the case, including accountants, are based in Europe and may have to be compelled to testify. The case involves “complex accounting issues” that will take time to explore, he said.
In a letter to Parsons today, DiCamillo said only three issues remain to be resolved in connection with the agreement. Pretrial exchanges of information can be completely quickly enough to have a May trial, he said.
The union’s proposal “would delay trial approximately 18 months from the date of the court’s” decision clearing the way for a final hearing, DiCamillo said. Fiat’s effort to acquire the shares would have been postponed for 2 1/2 years, he said.
The trial timetable proposed by the union is excessive, the company said.
At trial, Parsons will hear evidence on the call-option agreement’s formulas for valuing the trust’s shares to help set an acquisition price.
The formulas are based partly on Chrysler’s reported earnings before interest, taxes, depreciation and amortization for the four most recent financial quarters, minus the carmaker’s “net industrial debt” as listed in its most recent financial statement, according to court filings.
The accord, created to avoid disputes over the value of the trust’s shares, “has led to substantial disagreement” over what the stock is worth, Parsons said in his July 31 ruling. “The value of this dispute potentially could exceed a billion dollars,” he added.
The case is Fiat North America LLC v. UAW Retiree Medical Benefits Trust, 7903, Delaware Chancery Court (Wilmington).