Published December 14, 2012
Italian carmaker Fiat SpA <FIA.MI> fully intends to acquire the 41.5 percent of Chrysler Group shares that it does not now own, but wrangling over the price could continue for a while, Fiat-Chrysler chief Sergio Marchionne said on Friday.
Fiat is in arbitration proceedings with the owner of the shares, a United Auto Workers trust fund that pays medical benefits to retired workers. The trust fund acquired the shares during the U.S. government-sponsored bankruptcy and bailout of Chrysler in 2009, when Fiat gained an ownership stake and management control of the U.S. automaker.
"We've always taken the position that we would have to pay them, but the question is price," said Marchionne, speaking on the sidelines of a meeting of the Council for the United States and Italy, an international-relations group. The current arbitration proceedings, he added, are "part of the dance".
If, as industry experts predict, the two sides cannot agree on a price by year-end, the trust fund can begin the process that would lead to an initial public offering of its shares, potentially depriving Fiat of its goal of gaining full ownership of Chrysler.
However, the IPO process would take months to meet regulatory and other requirements, and a settlement could be reached during that time.
UBS estimates the fair value of Chrysler at between $9 billion and $13.4 billion, meaning the trust fund's 41.5 percent stake is worth between $4.1 billion and $5.5 billion.
Fiat and the health care trust are battling in a Delaware court over a 3.32 percent piece of Chrysler. Fiat is able to purchase up to 16.4 percent of Chrysler in this piecemeal fashion over the next three-and-a-half years. Chrysler has offered about half of what the health care trust believes the 3.32 percent stake is worth.
When Chrysler exited its 2009 bankruptcy, Fiat took a 20-percent ownership and has increased that since to the current 58.5 percent of the No. 3 U.S. automaker.
The system for Fiat to buy tranches of Chrysler for a total of 16.4 percent of the U.S. automaker was also part of that bankruptcy agreement. Fiat says it has used a formula for setting its price for the first tranche of those shares, and the trust wants more than double that figure. The full 16.4 percent of Chrysler to be purchased in this manner would total, Fiat says, $754 million, while the trust wants $1.7 billion.
Fiat earlier rebutted a report that it was set to raise money to finance its purchase of a further stake in Chrysler, saying it had no need for extra funds.
Its comment came after an unsourced report in Il Messaggero said Fiat was sounding out UniCredit <CRDI.MI>, Morgan Stanley <MS.N>, Bank of America <BAC.N> and Goldman Sachs <GS.N> about the possibility of raising between 1 and 2 billion euros ($1.3-$2.6 billion).