DETROIT – Chrysler Group LLC took the first step Monday to sell its stock to the public, one way to resolve a bitter dispute between its two shareholders – Fiat SpA and a United Auto Workers trust.
The actual sale of shares won’t happen until early 2014, if then, and it would be a substantial blow to CEO Sergio Marchionne’s vision of a wholly unified Fiat-Chrysler.
Fiat and the UAW Retiree Medical Benefits Trust remain as much as $2 billion apart in what each thinks the trust’s 41.5 percent stake of Chrysler is worth. The trust needs to convert its shares to cash because it is responsible for the health care coverage of about 63,000 retired Chrysler union workers.
In a 396-page filing with the U.S. Securities and Exchange Commission, the automaker revealed its latest financial picture.
The trust’s request for the stock offering could be a negotiating ploy to force Fiat to offer more.
Chrysler was forced to set the process in motion when the UAW trust sent a registration demand in January to the automaker asking Chrysler to register 16.6 percent of Chrysler shares for sale.
“The number of shares to be offered and the price range for the offering have not yet been determined,” Chrysler said in a statement.
While the offering could go to market later this year, December is not usually a good time because of the holidays.
The two sides, which have been knocking heads in a Delaware court for more than a year, could reach a compromise.
Marchionne has been trying since 2009 to merge Fiat with Chrysler completely. As sole owner, Fiat would have full control of Chrysler assets, including cash. Only Fiat stock would be traded, most likely on the New York Stock Exchange. Marchionne envisions one global headquarters in Auburn Hills, Mich., or Italy.
Proceeds of a Chrysler stock sale would go only to the UAW trust.
Monday’s SEC filing outlines possible risks facing investors. Chrysler said it has no plans of paying a dividend “in the foreseeable future.”
“Fiat is free to sell, in whole or in part, its equity ownership in us, which could reduce Fiat’s incentive to support our industrial alliance and may subject us to the control of a presently unknown third party,” Chrysler said in its registration statement.
Despite those warnings, Chrysler also disclosed that its cash position has grown to $12.2 billion on June 30 from $9.6 billion at the end of 2011.
Fiat has provided valuable technology that has improved the fuel economy of Chrysler’s product lineup.
Fiat has been trying to exercise a clause in its operating agreement with the UAW trust to buy another 3.3 percent of Chrysler shares every six months since July 2012 and has made offers for a total of 9.9 percent of additional Chrysler shares.
Media reports have suggested that the UAW trust wants as much as $5 billion for all of its shares while Marchionne says the trust “should buy a ticket for the lottery” if it wants that price. In April, JPMorgan credit analyst Eric Selle valued the UAW trust’s Chrysler shares at $3 billion.
Selle can no longer comment on Chrysler, however, because his employer is managing this offering.
“The IPO could well be a stumbling block in the consolidation of Chrysler within a global Fiat operation, and current Chrysler workers might be better served if such a consolidation takes place,” Jack Nerad, executive editorial director and market analyst at Kelley Blue Book, said in an email.
Conversely, the timing of a Chrysler stock offering could be good. Total industry sales of U.S. cars and trucks are expected to top 16 million this year for the first time since 2007. Most forecasters expect next year to be stronger.
Chrysler, as much as Ford and General Motors, is reaping robust profits from resurging demand for pickups.
Finally, Chrysler has said it expects to earn a profit of between $1.7 billion and $2.2 billion this year.