Chrysler Files for IPO in Possible Bluff

Jacob Harper |

On Sept. 23 Chrysler LLC filed the paperwork for an IPO, marking the possibility that for the first time since 1998 the company could be traded on the public market. However, some analysts speculate the IPO is part of a bargaining ploy as the two stakeholders in the company continue tense negotiations.

The Detroit automaker has been controlled by Italian company Fiat SpA since 2009. Before that they were owned by Cerebus Capital, and before that by German company Daimler-Benz. Fiat is actively seeking to merge with Chrysler, although there are two serious stumbling blocks: geography; and the company’s other stakeholder, the United Auto Worker’s (UAW) retiree health care trust fund.

Fiat CEO Sergio Marchionne has publicly stated that he wants to merge Fiat by buying out the UAW trust fund, so Chrysler can compete on a global scale with the major world players: Toyota Motor Corporation (TM) , Volkswagen, Ford Motor Company (F) and General Motors Company (GM) . However, Marchionne has stalled on making several tough, possibly unpopular decisions that would come with the merger, like whether the new company’s base of operations would be in America or Italy.

But more than picking the location of the headquarters, the main roadblock to a merger has been price. Fiat, who owns 58.5 percent of Chrysler, has balked at $5 billion the UAW wants for their 41. 5 percent stake in the company. After failing to come to an agreement with Fiat on the price, the UAW filed the IPO paperwork with the SEC, and is thus seeking to get the price they want on the public market.

The UAW is looking to cash out their share of the company to fund the trust, which pays the health benefits for 130,000 retired blue-collar auto workers.

The UAW’s filing for an IPO could be a windfall, or it could be a serious blow if the IPO were to backfire. Analysts have speculated the total market value of Chrysler to be anywhere from $4 billion to $15 billion. If the market were to value the company at the low end of the scale, the autoworker’s stake would be worth less than $2 billion on the market, which would be around $2 billion less than Fiat's offer and constitute a serious blow to the trust. 

The entire IPO, however, might just be another bargaining move by the union, and the company might not go public again after all. Morningstar analyst Richard Hilgert, who watches Fiat and Chrysler, was pessimistic the IPO would go through, saying “this is just the negotiating dance they have to go through to come to an agreement.”

If Fiat and the UAW trust comes to terms, the IPO can still be withdrawn.

 

(image courtesy of Wikimedia Commons)

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Companies

Symbol Name Price Change % Volume
TM Toyota Motor Corporation 116.76 -1.01 -0.86 121,893
GM General Motors Company 35.30 -1.13 -3.10 17,684,521
F Ford Motor Company 12.17 -0.26 -2.09 29,390,564
BLKPF Blackpearl Resources Inc 1.37 0.00 0.00 0

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