DETROIT, MI – According to an announcement by CEO Sergio Marchionne, Chrysler, the number three U.S. Auto maker and a division Fiat (MILAN:F) is expected to file for an IPO within the next two weeks. The IPO is expected to resolve a dispute between Fiat, which owns 58.5 percent of the company, and the United Auto Workers (UAW) Retiree Medical Benefits Trust, which owns the other 41.5%.
The Italian automaker had previously offered to purchase another 9.9 percent of the company, but the Trust rejected the offer. This prompted Fiat to file suit in Delaware, but the judge assigned to the case has declined to establish a price, preferring that the matter be settled through a trial.
According to sources, a $ 200 million gap in valuation exists between the Fiat offer and the Trust’s asking price. Speaking in Italy on Friday, Marchionne said ‘we need to go through this process of determining value. They (the Trust) have been very clear that they are not long-term holders of the assets. They want to monetize, so we need to find a way for them to exit in a way that does not create what I consider to be exceptionally high … expectations of value… The market will tell us. Let the market talk.’
An IPO would help the Trust convert its stake in Chrysler into cash to pay for the health care coverage of tens of thousands of UAW retirees. Once the Securities and Exchange Commission approves the IPO plan, the company will engage an investment bank to facilitate the sale.
General Motors (NYSE:GM), which also went through a government-supervised Chapter 11 bankruptcy in 2009, had their IPO in 2010, but it was not until May of this year that shares returned to the original offer price of $ 33 per share.
For Marchionne, the IPO is not the ideal solution as Fiat wanted to own 100 percent of the U.S. Automaker as this would allow for a more complete integration of the two companies including listing Fiat shares on either the NASDAQ or the New York Stock Exchange. While an IPO does not rule this out, it would complicate these plans, as Fiat would have to float Chrysler, and then purchase enough shares to take the company private before listing as Fiat in New York. Ultimately, this may prove too complicated as certain investor groups would attempt to drive up the share price.
However, for investors the separation of Chrysler and Fiat might not be a bad solution as Fiat’s European operations have been struggling as car sales have hit a 30-year low, while Chrysler has been largely profitable since emerging from bankruptcy.