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AN: VEBA demands Chrysler share registration - first step to IPO?


50 replies to this topic

#1 News Feed

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Posted January 9, 2013 at 04:54 pm

Chrysler says it has received a “registration demand” from the United Auto Workers union Retiree Medical Benefits Trust (usually called the “VEBA”) under the terms of the June 2009 Shareholders Agreement. The demand requests the registration with the Securities and Exchange Commission of 270,769.6 Class A Membership Interests now owned by the VEBA. The shares represent about 16.6% of Chrysler Group’s outstanding equity interests. Demand registration rights allow an investor to require a company to register shares of common stock with the SEC in order to for the investor to sell them on the market. In this case, Chrysler most likely will have to undertake, and fund, an initial public offering which can be expensive (GM's IPO cost $118 million and it was widely held that GM got a bargain). Fiat had hoped to be able to buy out the VEBA stake, but the Italian company recently admitted that the..

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#2 jazz77

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Posted January 9, 2013 at 05:38 pm

I reckon Marchionne's plan is to postpone the IPO until there's a verdict on the ongoing litigation with VEBA. If Fiat wins then it will buy the remaining 40% of Chrysler without selling any asset, merge the two companies and list the new company on Wall Street and Milan.

 

If Fiat doesn't win or the verdict comes too late Marchionne will sell some Fiat's asset (components like MM I guess, Ferrari seems very unlikely) or go for a new equity issuance.


Edited by jazz77, January 9, 2013 at 05:52 pm.


#3 tryphon

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Posted January 9, 2013 at 06:33 pm

The timing of this strikes me as suspicious: perhaps it is an indication that the judicial  decision on the value of Chrysler shares for the two outstanding FIAT purchases is not going the way VEBA was hoping...

They better play by the rules of fair play...Marchionne has a long memory....



#4 ShadowRider

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Posted January 9, 2013 at 06:49 pm

The timing of this strikes me as suspicious: perhaps it is an indication that the judicial  decision on the value of Chrysler shares for the two outstanding FIAT purchases is not going the way VEBA was hoping...

They better play by the rules of fair play...Marchionne has a long memory....

Nothing suspicious about the timing of this. The Veba was not permitted to do this until Jan 2013. 


 



#5 Longtimejeep

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Posted January 9, 2013 at 07:10 pm

Sergio isn't the only one with a long memory.

#6 sebring96hbg

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Posted January 9, 2013 at 07:48 pm

The timing of this strikes me as suspicious: perhaps it is an indication that the judicial  decision on the value of Chrysler shares for the two outstanding FIAT purchases is not going the way VEBA was hoping...

They better play by the rules of fair play...Marchionne has a long memory....

 

 

VEBA made the demand as soon as it was contractually capable of doing so.  And it had to do so prior to the first CGLLC board meeting of 2013.



#7 tryphon

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Posted January 9, 2013 at 09:28 pm

Nothing suspicious about the timing of this. The Veba was not permitted to do this until Jan 2013. 


 

Well, that explains it. Thanks!



#8 RVC

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Posted January 9, 2013 at 11:52 pm

It's a fairly transparent tactical maneuver to try and pressure FIAT into a deal. The way things are right now, SM has positioned FIAT the shareholder into a majority position from were they could delay this process for as long as they want to, and the VEBA knows this full well. The appointment of well trusted independent board members basically gave SM additional insurance on the actual governance of this process.

In short, it appears that once agian SM has been able to position himslef in a place where he has the upper hand; he will still likely pay more than he was entitled to under the agreement, but far less than the VEBA is (publicly) trying to extort.

Edited by RVC, January 9, 2013 at 11:52 pm.


#9 Longtimejeep

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Posted January 10, 2013 at 08:13 am

I don't believe the VEBA is trying to "extort" anything. It is attempting to fund it's obligation to administer and provide health benefits promised to retiree's.
Both Chrysler, its workers, & Fiat have benefitted immensely so far. Let's hope that ALL sides continue to be fair and prudent with their decisions going forward.
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#10 lvelleq (o)llllll(o)

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Posted January 10, 2013 at 10:56 am

I agree with Longtimejeep. There is nothing here except the next previously-choreographed step in a rather long dance.

Proforma stuff bereft of emotional motivations.



#11 tryphon

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Posted January 10, 2013 at 11:47 am

I agree with Longtimejeep. There is nothing here except the next previously-choreographed step in a rather long dance.

Proforma stuff bereft of emotional motivations.

From today's WSJ (my emphasis):

 

 

Fiat SpA : Union, Chrysler Spar over Auto Maker's IPO

01/10/2013| 07:16am US/Eastern

Chrysler Group LLC could be forced to stage an initial public offering as a means of resolving a dispute over its value with a United Auto Workers' retiree trust that holds a 41.5% stake in the auto maker.

The trust on Wednesday presented Chrysler with a "registration demand" asking it register a portion of its holdings. Chrysler's sales and profit have bounced strongly since emerging from bankruptcy protection under the management of Italy's Fiat SpA (F.MI, FIATY), its majority owner.

A spokeswoman for the union trust declined to comment on its request to register a 16.6% stake in the company.

The move comes amid a court dispute between Fiat and union retirees over the value of the trust's Chrysler shares. The trust recently maintained some of its shares are worth twice what Fiat offered to pay last year.

Chrysler Chief Executive Sergio Marchionne is wary of taking Chrysler public, preferring instead to buy the trust's shares directly and to repay debt owed to bondholders, according to people familiar with his thinking. The company has twice since July sought to use a call option to buy shares directly from the trust.

Fiat has said it wants to increase its stake in Chrysler to facilitate a merger of the auto makers. The Turin, Italy-based auto maker holds options to buy Chrysler shares every six months from the trust with the total capped at a 16.6%.

But a stock offering without Mr. Marchionne's blessing could be difficult to pull off, the people familiar with the matter said, because an IPO would largely depend on the company's efforts to pitch itself to investors and execute the offering. Chrysler said in a statement on Wednesday that there was no "assurance that a registration statement will be filed" or that an offering would be made.

The trust, called a Voluntary Employee Beneficiary Association and set up to pay medical costs of Chrysler's union retirees, has the right to demand Chrysler initiate proceedings for an IPO as part of a 2009 agreement that helped bring the Auburn Hills, Mich., car maker out of court protection.

Chrysler has been among the fastest-growing U.S. auto makers by volume. Its U.S. sales rose 19.2% last year to 1.6 million cars and light trucks, giving it an 11.1% share of the U.S. market, up from 10.6% in 2011. In its third quarter, the company earned $381 million, up from $212 million in the year-ago period. It has forecast full-year profit of $1.5 billion for 2012.

In contrast, Fiat's fortunes apart from Chrysler have tumbled due to a sharp slowdown in sales in its European home market. The company has forecast the automotive weakness in Europe may last into 2014.

Last July, Fiat sought to exercise its first call option to buy a 3.3% stake in Chrysler from the trust. But the VEBA, according to a lawsuit filed by Fiat in September, refused to turn over the shares. Earlier this month, with the lawsuit still pending, Fiat asked to buy additional shares from the VEBA, a move that would raise its stake in Chrysler to about 65%. The court is expected to rule on the suit in the next several months, Fiat said.

Fiat had offered $139.7 million last year to buy 3.3% of Chrysler from the VEBA and this month proposed paying $198 million for another 3.3% stake. The VEBA responded to Fiat's suit over the initial 3.3% stake by asking for about $343 million.

Fiat has pledged to increase its ownership of Chrysler every six months until it gets to more than 70% ownership.


Edited by tryphon, January 10, 2013 at 11:48 am.


#12 freshforged

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Posted January 10, 2013 at 12:29 pm

It would be foolhardy for Fiat to submarine the IPO--in that it will effect its own valuation as well.  Its better to have a majority share in a well perceived and stable company then complete ownership of a damaged and failing brand.



#13 jazz77

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Posted January 10, 2013 at 01:00 pm

It would be foolhardy for Fiat to submarine the IPO--in that it will effect its own valuation as well.  Its better to have a majority share in a well perceived and stable company then complete ownership of a damaged and failing brand.

Why would that hurt Chrysler?



#14 lvelleq (o)llllll(o)

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Posted January 10, 2013 at 01:19 pm

Why would that hurt Chrysler?

It might not hurt Chrysler so much as it might financially squeeze Fiat, which actually owns the stock.



#15 jazz77

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Posted January 10, 2013 at 01:35 pm

It might not hurt Chrysler so much as it might financially squeeze Fiat, which actually owns the stock.

Fiat wants to buy the remaining shares whether it will have to go buy them on the market or directly from VEBA.

 

And in my opinion the lowest is the price the better it is for Chrysler since the merger implies that the debts get merged too.


Edited by jazz77, January 10, 2013 at 01:37 pm.


#16 RVC

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Posted January 10, 2013 at 01:36 pm

I don't believe the VEBA is trying to "extort" anything. It is attempting to fund it's obligation to administer and provide health benefits promised to retiree's.
Both Chrysler, its workers, & Fiat have benefitted immensely so far. Let's hope that ALL sides continue to be fair and prudent with their decisions going forward.

The VEBA is doing its job of course, but what they are entitled to according to the agreement is a price calculated according to a formula put forth at the time of the signing, and agreed to by all.
however NOW the VEBA sees that business is doing ok and the company is worth a magnitude more than it was at the time of the signing of the agreement (which was zero of course). So, like a good [removed] organization, it seeks to get more from the counterpart REGARDLESS of what the agreement says, simply because it sees that the coffers are full.
How do you call it when someone tries to get what they aren't necessarily entitled to under the tacit threat of labor strikes?
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#17 Longtimejeep

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Posted January 10, 2013 at 01:39 pm

The issue is what the value of the shares are. The VEBA is already underfunded, thus their insistence on getting the highest possible value for their shares.
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#18 RVC

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Posted January 10, 2013 at 01:40 pm

It would be foolhardy for Fiat to submarine the IPO--in that it will effect its own valuation as well.  Its better to have a majority share in a well perceived and stable company then complete ownership of a damaged and failing brand.

So, according to your logic, not having an IPO would equal having a damaged and failing Chrysler?
Not having an IPO won't change anything; what determines the value, or potential value of the company, are things like sales, costs, investements ,market share, P/L, etc (all of which are in no way directly related to having an IPO). Just as it is now.
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#19 Longtimejeep

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Posted January 10, 2013 at 01:42 pm

This isn't the same relationship as it is with the Italian unions.
The union can not strike over this issue, why the reference??

#20 RVC

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Posted January 10, 2013 at 01:53 pm

The issue is what the value of the shares are. The VEBA is already underfunded, thus their insistence on getting the highest possible value for their shares.

As I said at the end of my first comment, "[SM] will still likely pay more than he was entitled to under the agreement, but far less than the VEBA is (publicly) trying to [get]". This is all part of a ritual and the final goal of this negotiation, like in all negotiations, is to reach an agreement. What SM is signaling is that he has positioned himself in such a way as to being able to neutralize the VEBA's IPO "weapon". In other words, he is willing to negotiate, but he wants it to be known that he holds the best cards and that he won't be strong armed into paying more than is acceptable. That is likely more than was agreed to initially, but certainly much less than what the VEBA is (publicly) asking for.I see this day in and day out, so to me it's all fairly common tactics and behaviours; however I don't see anything wrong with calling things by their name...but hey, it's not the first time I've been accused of not being particularly diplomatic or politically correct ;)

This isn't the same relationship as it is with the Italian unions. The union can not strike over this issue, why the reference??

Neither could the Italian unions as far as I know, but that's beyond the point.Of course there isn't a direct and immediate correlation, but it's fairly clear that if the VEBA starts a press campaign to try and force SMs hand, it will have a direct consequence on labor. There is no way the UAW will be able to do nothing if things go beyond a certain point.Hence the reference.


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