1. Chrysler's Conundrum
filed for a public offering with the
Monday as part of an effort to prevent itself from going public.
You figure it out. We sure as heck haven't been able to.
Chrysler, which was bailed out by Uncle Sam in 2009, emerged from Chapter 11 protection with financial support from
as part of a complex deal that has resulted in the Italian carmaker steadily increasing its ownership to 58.5%. The remaining shares are owned by a union-managed trust established in 2007 to pay retiree health care costs.
Fiat has been seeking to bring Chrysler in-house as a wholly owned unit, but the company to date has been unable to reach an agreement with the
United Automobile Workers' Voluntary Employee Beneficiary Association (VEBA)
on a valuation of the remaining VEBA-owned shares. Combining the two companies would allow Fiat to access Chrysler's cash reserves to fund operations as well as make it easier for the Italian company to cut back office costs by further integrating their operations.
And thanks to Sergio Marchionne, who serves as CEO of both Fiat and Chrysler, those cash reserves are rising. Chrysler has enjoyed recent sales success thanks in part to new, more fuel-efficient designs borrowed from Fiat, generating a profit of $507 million in the second quarter of 2013.
Marchionne said earlier this month the trust wants upwards of $5 billion for its stake. Fiat, however, is only willing to pony up about $2 billion. The shares to be sold in a potential IPO, which represent about 16% of the Chrysler's total, are part of VEBA's stake.
Here's the wacky part. In order to prove its number is the correct one, VEBA is pushing for a Chrysler IPO, even though resolving the dispute prior to an offering is the best result for both sides. It's basically brinksmanship.
In Fiat's view, public ownership would totally complicate its plans to blend the two companies because it lets outside investors into the process. And as we all know, outside investors are a pain in the ass. They might, for example, demand Fiat pay through the nose for VEBA's stake to benefit their own holdings, or even put the kibosh on the Fiat merger entirely.
Meanwhile, a Chrysler IPO poses risks for the union as well. Most notably, the fact that would-be investors might avoid buying shares in a company which is unable to get its act together. The fact that Chrysler and Fiat can't hash this thing out at the bargaining table could dampen demand for the stock, making it impossible for VEBA to get the higher price it wants for its remaining shares.
"If Fiat becomes unwilling to work with us beyond the scope of its existing contractual obligations, there may be a material adverse effect on our business prospects, financial condition and results of operations," the company said in the filing.
Forgive us if this is tricky. It's breaking our brains too.
We've never seen an auto IPO driven purely by spite either.
-- Written by Gregg Greenberg in New York