By Lee Spears,
and David Welch
JPMorgan Chase & Co., the lender that lost almost $2 billion during Chrysler’s 2009 bankruptcy, is now its chief adviser as the automaker’s two owners haggle over its value.
JPMorgan will advise Chrysler in the event of its sale to majority shareholder Italy-based Fiat SpA, said people with knowledge of the matter who asked not to be identified because the information is private.
The bank was listed this week as the lead underwriter of an initial public offering of Chrysler shares owned by the company’s other shareholder, a United Auto Workers retiree trust known as a VEBA, or Voluntary Employee Beneficiary Association.
The dual role highlights the complicated path Chrysler has been forced to take to resolve a dispute between its two backers. Sergio Marchionne, the chief executive officer of both Chrysler and Fiat who has spent four years seeking to merge the companies, is in a financial dispute with the UAW’s trust over the value of its 41.5 percent stake in Chrysler.
Allowing public investors to put a price on the stake, through the IPO process, is one way to resolve the matter.
“From a banker’s viewpoint, more transactions are preferred to less,” said Jay Ritter, a professor of finance at the University of Florida. “In either an IPO or a merger, the acquisition of the remaining stake offers opportunities to collect fees.”
The New York-based bank isn’t alone. The UAW’s trust has picked Deutsche Bank AG to represent it on both the IPO and the potential stake-sale to Fiat.
Chase, Deutsche Bank, Chrysler and Fiat declined comment.
The Wall Street Journal reported Deutsche Bank’s role on the deal earlier.
Marchionne, meanwhile, finds himself in the position of running the company that’s being listed and also the controlling shareholder that’s opposed to the IPO. One question advisers to Chrysler, Fiat and the health-care trust have grappled with is how Marchionne will square Fiat’s unwillingness to pay a high valuation for Chrysler, while he pitches the company’s value to public investors.
Chrysler acknowledged Marchionne’s awkward role in the share sale preparation, saying in a filing this week that he “may have a conflict of interest with respect to matters involving both companies.”
JPMorgan was chosen by Chrysler even though the bank had a contentious past with Marchionne.
It was the largest lender to Chrysler before its 2009 government-backed bankruptcy, and Marchionne and the U.S. Treasury pushed it for concessions — often reportedly conflicting with JPMorgan Vice Chairman Jimmy Lee.
JPMorgan’s pitch to investors will center on Chrysler’s North American focus, its management team, and the ability to improve earnings as engineering, research and development, and marketing costs are reduced, said one of the people. Chrysler delivered 643,000 vehicles in the second quarter, and only 61,000, or 9.5 percent, of them were outside North America, compared with 51 percent of Ford’s sales and 65 percent of GM’s.
Chrysler’s value has climbed to $13.5 billion, investment banker UBS estimates, as industrywide U.S. car sales gained in August to levels last seen in 2007. That would mean the 41.5 percent stake owned by the VEBA is worth $5.6 billion.
Fiat may end up paying $4.9 billion, $700 million less than the actual value, 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.