One week ago, the United Auto Workers trust fund VEBA was just thinking about taking Chrysler public. The word on the streets was the minority shareholder was going to force the company to file by the end of the month.
Less than one week later, it filed. Now, that was quick, right?
The issue is the same. Fiat’s (OTC: FIATY) CEO Sergio Marchionne wants to take full ownership of Chrysler by purchasing the trust's shares, but the two can’t come to an agreement on price. Fiat isn’t doing well in U.S. sales, so Marchionne wants to acquire the rest of the company to get more U.S. profits.
But the U.A.W. trust doesn’t want to give up its stake in the company that easily. Even though it never had any intention on keeping it, it wants to make this situation worth its while.
The trust fund owns 41.5% of the company and wants $5 billion for its stake. Marchionne has argued that the whole company is worth less than that at just about $4 billion.
Instead of waiting, the trust fund decided to push the company to file for IPO on Monday – an ability it gained from Chrysler's bankruptcy in 2009, according to Reuters. It chose JPMorgan (NYSE: JPM) as the lead underwriter.
Marchionne isn’t happy about this because it will further delay his purchase of the entire company, but there’s not much he can do at this point. The IPO is likely to hit the stock market in the first quarter of 2014.
What This IPO Might Mean
While the IPO seems to be the next logical step for Chrysler after Marchionne has decided not to buy the shares for the price the trust wants, it may just be a manipulation tactic. The fund may be thinking that if it pushes the company to file for IPO, it will make Marchionne anxious enough to throw the $5 billion at them and call it quits on the IPO.
There’s still time for that to happen, and it may be Plan A. Of course, if Marchionne doesn’t cave, Plan B isn’t bad either because the money made can be used to pay the benefits for Chrysler retirees.
It's a smart tactic for the U.A.W. trust. It wants to walk away with more than it deserves, and it doesn’t care that the price it wants is more than the company is worth. If Fiat’s CEO really wants its share, he will end up paying it. If not, the trust will play the game and still make money from its share. It’s a wise move – just not favorable for Fiat, and possibly not for investors either.
We don’t know the whole story, which is what may be making a lot of people skeptical about the trust's intentions. We know it pushed Chrysler to file the IPO with the Securities Exchange Commission on Monday, and the offering was estimated at $100 million.
What we don’t know is how many shares will be offered or when the company will go public. We also don’t know the price range.
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What You Need to Know as an Investor
Chrysler has been doing well for the past two years. Auto sales have risen significantly, and new vehicles, such as the Jeep Grand Cherokee, are making the company a lot of money. In fact, its profits have increased 16 percent in the second quarter to $507 million.
While this may seem like an awesome investment option, it may not be as great as you think. Fiat isn’t going to be part of it. It owns most of the company, so you would only be investing in less than half of it.
This could end up causing quite a swing in the stock price when it hits the market. The other downside is that the market value will likely not be as high as you’d like it to be because again, it’s only less than half of the company. This means the worth of the shares may be much less than anticipated.
It’s best to take a watch-and-see stance with this one. Fiat wants the trust’s shares, and the trust wants Fiat to buy it, but for an inflated price. Getting in the middle of this tug of war may end up costing you.
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