By Jerry Hirsch
10:41 PM EDT, September 23, 2013
Chrysler Group filed plans Monday to resume trading its shares on the stock market, part of a high-stakes game its parent company, Fiat, is playing against a big union trust.
The stock sale would not be a normal initial public offering, in which a company sells it shares to raise money for its operation or to cash out the founders. Rather, a portion of the automaker, based in Auburn Hills, Mich., would be sold by the UAW Retiree Medical Benefits Trust.
The union wants to start to monetize the 41.5% of Chrysler that it acquired during the automaker's bankruptcy and restructuring four years ago. The trust provides medical coverage for about 115,000 retired Chrysler workers and their families.
It also wants investors to help determine the true value of Chrysler, which would help the union in negotiations to sell its holdings to Fiat, the Italian automaker.
"This is a game of chicken," said James Rubenstein, an auto industry analyst and geography professor at Miami University in Oxford, Ohio. "Fiat wants to pay a low price and the UAW wants a high price."
Investment bank J.P. Morgan Securities will start circulating key financial details about Chrysler to investment houses to start to gauge what investors might pay for the shares. Chrysler left pending information about how many shares might be sold by the union trust or when the sales might occur.
Fiat owns 58.5% of Chrysler's stock and has been attempting to buy the rest from the union trust. Sergio Marchionne, who serves as chief executive of both the U.S. automaker and Fiat, wants to merge the two companies, believing that will give the combined company the global reach and sales volume to thrive in the competitive auto industry.
But the two sides have failed to agree on a price.
Previously, Fiat and the union have tried arbitration and they remain in litigation over how much the union trust's holdings are worth, Rubenstein said.
The documents filed Monday with the Securities and Exchange Commission underscore how far Chrysler has come since exiting its federal government bailout and bankruptcy restructuring in 2009.
"This is a dispute that all the smart money thought would never take place because there would not be a Chrysler worth fighting over," said Harley Shaiken, a UC Berkeley labor professor.
But Chrysler has made a remarkable recovery.
"Chrysler's turnaround confirms the success of the Fiat/Chrysler pairing," said Karl Brauer, an analyst at auto price information company Kelley Blue Book. "The automaker is approaching four years of uninterrupted growth while leading many vehicle segments in terms of technology and fuel efficiency."
In July, the automaker posted second-quarter net income of $507 million, a 16% gain from $436 million a year earlier. The second quarter was Chrysler's eighth consecutive quarter of positive net income.
Through the first eight months of this year, Chrysler has sold more than 1.2 million vehicles in the U.S., up nearly 10% from the same period a year earlier. It is the fourth largest auto seller in the U.S., trailing General Motors, Ford and Toyota.
Now that Chrysler is on a successful trajectory, the union wants to get the best deal it can for its retirees.
"This is about people and healthcare," Shaiken said. "That is why it has been high stakes and some tension in negotiations."
But the plan also presents some risk for the union trust "because one never knows what the stock market will do, particularly given some of the unrelated political issues that could influence it, such as a possible government shutdown," Shaiken said.
If the share sale moves forward, Chrysler will resume trading following nearly a 15-year stock market hiatus.
Daimler-Benz AG, the owner of Mercedes-Benz, acquired what was then called Chrysler Corp. in 1998. The combination was supposed to enable the German automaker to leverage its famous engineering and the strong position Chrysler occupied in North America.
But synergies between the two companies — with vastly different corporate cultures — proved elusive. Daimler sold Chrysler to Cerberus Capital Management in 2007. Then the recession hit, sending Chrysler into bankruptcy in 2009.
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