UAW Trust Pushing Chrysler IPO Shows $3 Billion Shortfall

The trust responsible for paying the health-care costs of some union retirees of Chrysler Group LLC faces $3 billion in unfunded obligations as it works to get the most for its stake that Fiat SpA (F) wants to buy.

The trust’s benefit obligations narrowed by $414.9 million to $13.4 billion during 2012, according to its amended 2012 financial statement. At the same time, the net value of its assets rose to $10.3 billion, driven mostly by an increase in the estimated value of its 41.5 percent stake in Auburn Hills, Michigan-based Chrysler. Fiat owns the other 58.5 percent.

While the shortfall was reduced from more than $5 billion a year earlier, the trust needs to maximize the value of its Chrysler holdings to cover the projected cost of retirees’ health care. Unable to agree on a price with Sergio Marchionne, the chief executive officer of Chrysler and Fiat, the union trust last month forced him to file for a Chrysler initial public offering.

Marchionne has been trying to merge the two companies for four years to help create an automaker with the scale to compete globally. The process of setting a value in the public offering may end the stalemate that has kept the two sides from reaching a deal that combines the two automakers.

Katie Merx, a Chrysler spokeswoman, declined to comment. Matt Wood, a spokesman for the trust, didn’t immediately respond to an e-mail seeking comment.

Counting on Chrysler

More than a third of the value of the trust’s assets is in Chrysler stock, according to the filing, which listed $3.6 billion in joint venture interests, up from about $2.7 billion a year earlier. The trust provided health-care coverage for 61,214 people at the end of 2012, compared with 63,171 a year earlier.

The trust, which is structured as a voluntary employee beneficiary association, or VEBA, received its Chrysler holding as part of the automaker’s 2009 government-financed bankruptcy that gave control of the company to Fiat.

Since then, Chrysler’s success has exceeded analysts’ estimates. The company’s U.S. sales have risen for 42 straight months, and it’s been profitable for eight consecutive quarters, while Fiat has struggled through Europe’s long economic slump.

Marchionne is seeking greater integration between the two units, as well as access to Chrysler’s $11.9 billion in cash to fund an expansion of the Alfa Romeo brand.

Although Fiat has the right to buy the stake for around $6 billion, Marchionne is seeking to pay much less. He said last month the trust “should buy a ticket for the lottery” if it wants at least $5 billion for its holding.

Chrysler’s value has climbed to $13.5 billion, UBS estimates, as industry wide U.S. car sales may rise this year to a level last seen in 2007. That would mean the 41.5 percent stake owned by the VEBA is worth $5.6 billion.

To contact the reporter on this story: Mark Clothier in Southfield, Michigan, at mclothier@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net

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