Chrysler Group LLC, which could be heading for an initial public offering, could be worth anywhere from $9 billion to $13.5 billion on the open market, according to analysts reports.
The auto maker’s valuation has come into question because of a dispute between its majority shareholder, Fiat SpA (FIATY, F.MI), and a United Auto Worker’s union trust fund that owns a 41.5% stake in the company.
On Wednesday, the trust fund, which provides health-care coverage for retired auto workers, presented Chrysler with a registration demand, calling on the company to initiate the process for holding an IPO. The union trust wants Chrysler to register 16.6% of its shares. It was given the right to demand it register shares as part of a 2009 agreement that helped Chrysler emerge from bankruptcy.
The move came amid an ongoing court dispute between Chrysler’s majority owner, Fiat SpA, and the trust over the pricing of the Chrysler shares. The trust is formally known as the UAW Retiree Medical Benefits Trust.
Fiat is trying to use a series of call options on the fund’s shares to buy up a 16.6% stake in Chrysler.
Last year, it triggered the first of the call options, offering $139.7 million for a 3.3% stake, a sum that would value all of Chrysler at about $4.2 billion. The union trust countered, asking for $343 million, setting Chrysler’s value of $10.3 billion.
On the open market, though, Chrysler could fetch a market value of $13.5 billion, according to Richard Hilgert, a Chicago-based analyst for Morningstar Inc.
“Fiat is still getting the stock cheap,” said Mr. Hilgert, even if it ends up paying the trust’s price.
USB, in a report released in November, valued Chrysler at $9 billion.
This month, Fiat exercised a second call option, proposing to pay $198 million for another 3.3% stake. Fiat sued the trust in September, claiming it refused to turn over the shares.
Mr. Hilgert said it’s unlikely there will be an IPO. “This is merely a chip on the table to gain leverage over Fiat to raise the price,” he said.
By initiating the process, Chrysler will be forced to seek a valuation on the company from investment bankers, Mr. Hilgert said. And the union trust can then use that in their case against Fiat, he added.
“You can still retain an investment banker without filing a registration statement,” he said.
Chrysler said in a statement Wednesday it would comply with the demand, but that there is “no assurance” this will result in an IPO. A spokeswoman for the union’s trust has declined to comment.
Fiat is eager to raise its stake in Chrysler to facilitate the merger of the two companies, but an IPO could be costly and serve as a distraction for the Italian auto maker as it tries to turn around its money-losing operations in Europe.
Source: Dow Jones