Marchionne (Bill Pugliano / Getty Images)
Fiat SpA CEO Sergio Marchionne said Wednesday his effort to purchase the rest of Chrysler Group LLC from a United Auto Workers trust has failed, so taking the Auburn Hills-based automaker public again is the only option left.
“That horse left the barn,” he said during a conference call with reporters and analysts, adding that his company is no longer in talks with the UAW trust, which owns a minority stake in Chrysler. “We are now bent on executing the IPO. I hope that we can get it done by the end of this year.”
It is a major about-face for Marchionne. But it now appears to be the only way he can wrest the rest of Chrysler from the union and complete his planned merger of the two automakers. And Fiat may still end up owning everything.
“It’s a high-stakes game,” said David Cole, chairman emeritus of the Center for Automotive Research. “They’re both in a little bit of a box. The UAW needs to make sure it has enough money to cover the needs of its retirees. Marchionne knows what he can spend. It’s all about setting the value of the company. At some point, it’s best to let the market decide.”
Chrysler has not been traded publicly as a standalone company since it was acquired by Daimler-Benz AG in 1998.
The product of that so-called “merger of equals” — DaimlerChrysler AG — was traded on publicly until the Germans decided to jettison Chrysler, offloading the struggling automaker to the privately held Cerberus Capital Management LP in 2007. Two years later, control of a bankrupt Chrysler passed to Fiat as part of a bailout deal brokered by the Obama administration.
As a result of that deal, Fiat now owns 58.5 percent of Chrysler. The other 41.5 percent is owned by the trust, which is responsible for providing health care coverage for UAW retirees.
Marchionne has been trying to buy the trust’s shares to complete his planned merger of the two companies. The two sides have been unable to agree on a price. Last November, Fiat asked a judge in Delaware, where Chrysler is incorporated, to settle the matter. But he has decided to put the question to a jury, and the case will not be heard until next September.
Marchionne is desperate to move things forward because of Fiat’s deteriorating position in Europe, where a weak market and fierce competition from German automakers is taking a heavy toll on its bottom line.
“The sandbox today in Europe is completely overcrowded, and I see nothing — and I repeat this categorically — I see nothing in terms of industry moves in Europe that would suggest any level of optimism about our performance in ’13 or ’14,” he said. “We have to protect the house. And the only way to protect the house is to move the sandbox and go play somewhere else.”
That means coming to America, likely through a reverse merger that sees Chrysler absorbing Fiat to create a new, global automaker traded on one of the U.S. exchanges. Fiat Industrial, which also is run by Marchionne, has pursued a similar strategy with CNH Industrial NV. But that strategy hinges on Fiat’s ability to acquire the rest of Chrysler.
Chrysler filed its application with the U.S. Securities and Exchange Commission last month at the trust’s request. Marchionne said Wednesday the commission is in the process of hearing comments about its filing before clearing the way for the company to set a date for its IPO.
“It’s a process that we’re going to work at diligently,” he said. “It’s our sincere hope that we’ll be able to execute the IPO in 2013.”
Just three months ago, Marchionne said the end of the year would be the “wrong time” for an IPO. He also peppered the company’s SEC filing with warnings that an IPO could scuttle the alliance with Fiat.
Many observers thought that was aimed at pressuring the UAW trust to reach a deal.
“They could end up back at the bargaining table,” Cole said, though he added that all of this could also drive down the share price if the company does go public and let cash-strapped Fiat buy what it needs for even less on the open market.
That would be consistent with the strategy Marchionne laid out at the beginning of the IPO process in January.
“If we need to go through that process to prove our point and establish a benchmark valuation so that effectively we can transact and move it forward, fine,” he said then, noting that less than 25 percent of the company would be traded on the public market. “Eventually, we’ll end up having a merged company.”
Allowing the public to purchase any shares would open the door to other investors who may have a different idea about the best course for Chrysler.
“The concern is does anybody else buy more than 4 percent or 5 percent?” said Stephanie Brinley, an analyst with IHS Automotive.