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Chrysler IPO amended

by David Zatz on

Bloomberg reported yesterday that Chrysler has amended its initial public offering (IPO) registration statement to note the delay in Jeep Cherokee shipments; it also does not call Chrysler’s product launch history successful now.  The new statement clarifies the meaning of the terms “significantly refreshed” and “new,” and claims a $450 million savings from joint purchasing with Fiat.


Chrysler and Fiat share a CEO, Sergio Marchionne, who has made it clear that he does not want Chrysler to have an IPO — that is, to sell shares of the company on the open market. Instead, Mr. Marchionne wants Fiat to be able to buy Chrysler outright. The IPO has, however, been demanded by Chrysler’s co-owner, an organization (“the VEBA”) created to administer pensions and retiree health care. The VEBA was created because Chrysler had wanted to move pension and retiree health care off its books, shifting those liabilities to an independent group; this was done with the cooperation of the UAW.

Fiat currently owns 58.5% of Chrysler, and has the right to buy all but 16% of the company at set rates; however, the formula for valuing the “all but 16%” is under dispute, and a judge has postponed rulings on the value until next year.  Even if there was agreement on that portion, there would still be the matter of valuing that final 16%.

The VEBA was given the right to demand an IPO during the Chrysler rescue process.

Mr. Marchionne now has a conflict of interest, as the filing notes. Showing Chrysler’s success in a very public way is good for Chrysler, lowering the cost of debt, helping to sell cars (since few want to buy cars from a “troubled” company), and most likely providing leverage with suppliers and potential employees. However, the more successful Chrysler looks, the higher the cost for Fiat to buy it.

Some observers believe that Chrysler has changed its use of advertising and incentives to reduce its double-digit sales growth for numerous months in a row to a slight sales increase in September.

The VEBA is attempting to wrestle more cash from Fiat largely because it is underfunded for the obligation it has. Fiat could buy its entire stake for $4.25 billion, according to Mr. Marchionne’s figures, while the VEBA believes its share is worth over $5 billion. Fiat’s initial 35% stake was provided in return for agreeing to lead Chrysler and sharing some technology and designs. Ironically, to date, the technologies and designs shared by Fiat have been far less successful than the improvements to Chrysler’s existing cars: while Ram ProMaster (using Fiat’s Ducato as a base) has only just gone on sale, the more clearly Fiat-influenced cars (Dodge Dart, Fiat 500) have not done nearly as well as the “pure Chrysler” vehicles.

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