Chrysler IPO Said Delayed to 2014 by U.S. Tax Confusion

Chrysler Group LLC’s initial public offering was delayed after the automaker wasn’t able to resolve a routine tax issue quickly enough to complete the sale this year, three people with knowledge of the matter said.

Chrysler needs a letter from the U.S. Internal Revenue Service to clarify tax liabilities after the IPO and didn’t want to proceed without it, said the people, who asked not to be identified because the matter is private. An offering of union-held shares may be held in the first quarter, said Fiat, which owns 58.5 percent of the third-largest U.S. automaker.

The Chrysler board determined after speaking with the carmaker’s underwriters that an IPO this year was no longer feasible, Turin, Italy-based Fiat SpA (F) said in a statement today. Advisers were considering a valuation of about $10 billion for Chrysler, near the low end of the range considered, people with knowledge of the matter said last week. A union trust demanded the offering to resolve a pricing dispute with Fiat.

“The IPO, as it was unfolding, wasn’t a knock-out punch for either side,” said Erik Gordon, a professor at the University of Michigan’s Ross School of Business and Michigan Law School. “Each side was overly optimistic. It left both sides in a position where maybe it was better to keep talking.”

Photographer: Susana Gonzalez/Bloomberg

A worker checks the undercarriage of a Dodge Journey vehicle at Chrysler Group LLC's assembly plant in Toluca, Mexico, on Nov. 8, 2013. Close

A worker checks the undercarriage of a Dodge Journey vehicle at Chrysler Group LLC's... Read More

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Photographer: Susana Gonzalez/Bloomberg

A worker checks the undercarriage of a Dodge Journey vehicle at Chrysler Group LLC's assembly plant in Toluca, Mexico, on Nov. 8, 2013.

Sergio Marchionne, chief executive officer of both carmakers, has been working to combine the two companies for four years to better compete with the likes of Volkswagen AG, Toyota Motor Corp. and General Motors Co., the other automaker bailed out with a government-financed bankruptcy in 2009. The U.S. plans to sell its final 31.1 million GM shares by the end of the year.

Not Close

Fiat, which took control of the U.S. automaker as part of its 2009 reorganization, and a United Auto Workers retiree medical trust aren’t close to a deal that would give Fiat full ownership, two people said. The trust and Fiat are disputing Chrysler’s value as Marchionne seeks to buy the union fund’s 41.5 percent stake.

Even a short delay would have had Chrysler’s IPO -- slated for Dec. 11 -- running into competition from an offering of Hilton Worldwide Holdings Inc., one of the people said. The world’s largest hotel operator is seeking about $2.25 billion in an IPO that is expected in December, people with knowledge of the matter said last week.

Ample Supply

“There’s plenty of supply of auto-sector stocks with the Treasury selling GM into the market,” Richard Hilgert, an analyst with Morningstar Inc. in Chicago, said in an interview. “The only reason to pull back on an IPO is because you’re not going to get the valuation you want.” Since the trust “is the one driving this, if they’re not happy with the valuation, they’re going to pull it,” he said.

The trust is working to determine whether to sell its holding to Fiat directly or press forward with an IPO.

“No assurance can be given as to whether or when an offering will be launched,” Fiat said in the statement. “Any launch will be subject to market conditions and other relevant considerations.”

Spokesmen for Fiat and Auburn Hills, Michigan-based Chrysler declined to comment on the tax issue.

Low Valuation

The $10 billion valuation was on the low end of a range from $9 billion to $16 billion, that would make the trust’s stake worth $4.15 billion, less than what analysts have expected Fiat to pay.

Chrysler had planned to begin formal meetings with potential IPO investors the first week of December, people with knowledge of the matter said last week.

Fiat fell 3.5 percent to 5.75 euros at the close in Milan. The stock has jumped 52 percent this year, valuing the Italian manufacturer at 7.19 billion euros ($9.71 billion).

Marchionne has offered the trust at least $1 billion less than what the labor group is asking, and said the UAW “should buy a ticket for the lottery” if it wants $5 billion or more.

In the IPO of the union trust’s shares, Marchionne finds himself in the position of running both the company that’s being listed and the controlling shareholder that opposes such a sale.

The trust needs to maximize the value of its stake to pay for retirees’ medical care. It estimated in a filing last month that those costs will be $3.1 billion more than its assets are worth. Marchionne is eager to avoid over-paying so the carmakers have as much money as possible to invest in new vehicles.

Chrysler plans to apply to list its shares on the New York Stock Exchange with the proposed ticker symbol CGC, according to a regulatory filing today.

JPMorgan Chase & Co. (JPM) and Bank of America Corp. are leading the offering, the filing shows, with Barclays Plc, Goldman Sachs Group Inc., Morgan Stanley and UBS AG also serving as underwriters. Deutsche Bank AG is advising the union, according to a person familiar with the matter.

To contact the reporters on this story: Tommaso Ebhardt in Milan at tebhardt@bloomberg.net; Mark Clothier in Southfield, Michigan at mclothier@bloomberg.net; David Welch in New York at dwelch12@bloomberg.net

To contact the editors responsible for this story: Jamie Butters at jbutters@bloomberg.net; Chad Thomas at cthomas16@bloomberg.net; Mohammed Hadi at mhadi1@bloomberg.net

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