Chrysler: Health-Care Trust Demands Step to Possible IPO
Chrysler Group LLC, the U.S. automaker majority owned by Fiat SpA, said its minority shareholder demanded a registration for its holdings in a step toward a possible public stock offering.
Chrysler will comply with the demand by the United Auto Workers Retiree Medical Benefits Trust, which owns 41.5 percent of the automaker, according to a statement yesterday. While registration is a first step in preparing to a public offering of stock, it doesn’t mean there will be an IPO, Chrysler said.
Sergio Marchionne, the chief executive officer of both Fiat and Chrysler, plans to merge the two companies by 2015 after striking an alliance through Chrysler’s U.S.-backed bankruptcy more than three years ago. Fiat, mired in the Europe auto market’s slump, faces restrictions in accessing Chrysler’s cash as part of conditions set by the government’s rescue.
“This will provide a clearer price for what Fiat will need to pay to pick up the remaining shares beyond the call options,” Richard Hilgert, an analyst for Morningstar Equity Research in Chicago, said yesterday in a telephone interview. “It’s more probable that Fiat will wind up buying the shares before it goes to an IPO, and this gives VEBA a bit of negotiating leverage to say here’s what the market would pay for this chunk of stock right now.”
Fiat has become increasingly dependent on Chrysler as demand in the Turin, Italy-based carmaker’s home market plunged in 2012 to the lowest in 34 years, according to LMC Automotive. Chrysler, by contrast, has gained market share by recording a 33-month streak of sales gains in the U.S., where the broader market has climbed for three straight years.
The trust, which is a voluntary employee beneficiary association, or VEBA, wants to register 16.6 percent of the shares in Auburn Hills, Michigan-based Chrysler, the company said.
Fiat owns 58.5 percent of Chrysler. The Italian automaker is in a legal dispute with the UAW trust over the price it must pay to exercise an initial call option that would boost its ownership stake to almost 62 percent.
The UAW trust said in a November court filing that it’s owed $342 million, more than double the $139.7 million that Fiat has said the shares should be worth. Fiat said Jan. 3 that it plans to exercise a second call option that would increase its stake to about 65 percent.
Marchionne, 60, obtained control of Chrysler without paying any cash in 2009 by pledging Fiat (F)’s vehicles, technology and managerial expertise. Fiat has built its Chrysler ownership from 20 percent in part by achieving performance-related requirements, including production of a more fuel-efficient engine and a car that could get 40 miles (64 kilometers) per gallon.
The U.S. exited its Chrysler holdings in June 2011 when Fiat paid $500 million for the government’s remaining 6 percent stake. The U.S. has said Chrysler returned more than $11.2 billion of the $12.5 billion committed to the company and that it’s unlikely to fully recover the remaining $1.3 billion.
The UAW created VEBA trusts in 2007 in a concession that removed retiree health-care liabilities from U.S. automakers’ balance sheets.
The Chrysler VEBA had 63,171 participants as of the end of 2011, a number that doesn’t include dependents, the trust said in its November court filing. The plan had net assets of about $8.8 billion and total benefit obligations of about $13.8 billion, according to the filing.
Fiat’s proposed exercise price for its initial call option would “exacerbate the Chrysler plan’s existing underfunding and might, over time, impact the level and/or duration of benefits that the Chrysler plan would be able to provide to participants and beneficiaries,” the VEBA said in its filing.
Patty McCarthy, a spokeswoman for the VEBA, declined to comment in an e-mail.
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