Sergio Marchionne, who has spent four years pursuing a merger between Fiat SpA and Chrysler Group LLC, plans to file an initial public offering for the American carmaker in the coming days. It’s an IPO that he’ll do everything he can to avoid letting happen.
The share sale preparation is part bluff by Marchionne, who heads both carmakers and plays cards with staff on flights between Italy and the U.S. The ultimate goal is to use the process to strike a deal with the United Auto Workers’ retiree health-care trust, also called a VEBA, the only other shareholder in Chrysler.
The VEBA has been holding out on selling its Chrysler shares for a price that’s at least $1 billion more than Fiat wants to pay. The IPO gambit is meant to set a market value and force the VEBA (or Voluntary Employee Beneficiary Association) back to the bargaining table.
If all else fails, Marchionne still has a standing agreement to pay about $6 billion for the stake. Should the IPO market point to a higher value than that, he could exercise his option to buy at the fixed price. If investors indicate the shares are worth less than that, Marchionne would only need to offer more than the market valuation to take control.
“Marchionne’ll make a call once the price is set, keeping in mind the downside is the $6 billion,” said Philippe Houchois, an analyst at UBS in London.
The Fiat CEO, who said Sept. 13 that an IPO filing could be as early as this month, has made a career out of this type of gamesmanship.
In 2005, he threatened to exercise an option that would have required General Motors’ predecessor to take over Fiat’s debt-strapped auto business. The ploy ended up netting the manufacturer $2 billion to unwind the agreement and regain control of its car-making unit.
“I wouldn’t underestimate Marchionne’s ability to achieve his goal given his track record,” said George Galliers, an analyst at ISI Group in London. “You have this strange situation where Marchionne is both the one who will presumably market the IPO and is also a potential buyer of the stake.”
The GM deal saved Fiat from a possible collapse. A deal for Chrysler now could give the Turin, Italy-based company another lease on life. A merger with the U.S. manufacturer, which is 58.5 percent owned by Fiat, would create more of a global competitor for leaders Toyota, GM and Volkswagen.
Buying the trust’s 41.5 percent stake will help Marchionne access Chrysler’s $11.9 billion in cash to fund a turnaround in Europe, where Fiat is losing market share. Fitch Ratings recently confirmed its negative outlook on Fiat.
“Material uncertainties remain regarding the extent of investment to increase Fiat’s stake in Chrysler,” wrote Tom Chruszcz, a Fitch analyst, in an e-mailed statement. “A Chrysler IPO could possibly take place in early 2014 and help set a value on the stake Fiat does not own and for which they are at loggerheads with the other owner, the VEBA Trust.”