Fiat Says Chrysler IPO Would Split Auto Alliance in Two

Fiat SpA’s plans to merge with its Chrysler Group LLC unit could be jeopardized if a health-care trust succeeds in selling a minority stake in the U.S. carmaker in an initial public offering.

“If the IPO will take place, there will be two companies, and that’s different than having a single one,” John Elkann, the Turin, Italy-based company’s chairman, said today in Milan when asked by Bloomberg News if the listing would put the alliance at risk. “There is no doubt” that a listing would alter Fiat’s relationship with Chrysler.

Fiat is reconsidering the benefits and costs of further expanding its relationship with Chrysler in light of plans to sell shares to the public, the Auburn Hills, Michigan-based company said in a filing for the listing earlier this week. Sergio Marchionne, who runs both automakers, is looking to the IPO process to kick-start a merger effort that was stalled by a dispute over Chrysler’s value.

Marchionne, 61, has spent the past four years working to combine the companies and create a global player with the scale to compete with Toyota Motor Corp., General Motors Co. and Volkswagen AG. Buying the trust’s stake would give Fiat access to Chrysler’s $12 billion in cash to help fund a turnaround in Europe, where Fiat is losing money and market share. Marchionne’s plan is to merge Fiat and Chrysler as early as next year.

$1 Billion Gap

Fiat shares fell as much as 13.5 cents, or 2.2 percent, to 6.05 euros and were down 0.7 percent at 4:08 p.m. in Milan trading. The stock has risen 62 percent this year, valuing the automaker at 7.68 billion euros ($10.4 billion).

Calling the future of Fiat-Chrysler relations into question is a warning to the United Auto Workers retiree trust, which owns the 41.5 percent of Chrysler not held by Fiat. Marchionne is offering at least $1 billion less than what the trust wants for the stake and is banking on investors being hesitant to pay a premium in an IPO opposed by Fiat.

Buoyed by a recovery in industrywide U.S. car sales to pre-crisis levels, Chrysler is valued at $13.5 billion, which would make the union trust’s stake worth about $5.6 billion, according to estimates from UBS. Fiat may end up paying $4.9 billion to buy the holding and end the dispute with the trust because the Italian carmaker has an option to purchase part of the stake at a lower price, according to UBS.

The trust received the holding as part of Chrysler’s government-backed bankruptcy in 2009. Although Fiat already has the right to buy the stake for around $6 billion, Marchionne has said that he’s seeking to pay much less.

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