DETROIT — Chrysler filed for a public stock offering on Monday, acting only under pressure from its second-largest shareholder, a trust set up to provide medical coverage for 115,000 retired autoworkers and their relatives.þþOrdinarily, Chrysler’s plan would be cause to celebrate the automaker’s comeback from its government bailout and bankruptcy in 2009. But it is acting only after negotiations stalled between Fiat, which controls Chrysler, and the trust over the purchase of the trust’s minority stake in Chrysler.þþThe offering could be canceled if Fiat and the trust reach a deal.þþThe Detroit automakers have large financial responsibilities to their retirees. On Monday, General Motors said it would raise money in the bond market to buy preferred stock in the company owned by its retiree health care trust at a cost of $3.2 billion. Chrysler’s offering arises from an unusual conflict of interests, made possible by the remarkable turnaround at Chrysler since the federal government shepherded it through bankruptcy four years ago.þþThe United Automobile Workers health care trust has the legal right to cash in a large part of its 41.5 percent stake in Chrysler, which is a legacy of a deal brokered in 2009 by the Obama administration’s auto task force. At the time, the deal was seen as a last effort to save the faltering automaker, while preserving peace with the U.A.W.þþNow, with profits flowing again and the trust in need of cash, it has formally requested that Chrysler register for a public offering covering about 16 percent of the company’s overall shares. The offering is another sign of how Chrysler — like General Motors — has recovered since the bailout. In the case of G.M., the Treasury Department is continuing to sell its ownership position, and now owns less than 8 percent of the company’s stock.þþThe Chrysler offering, however, is not supported by Sergio Marchionne, the chief executive of Fiat and Chrysler and the architect of the American company’s revival.þþMr. Marchionne is eager to merge the companies into an international auto giant. To do so, he needs to acquire the trust’s entire 41.5 percent stake.þþBut the gap between what Fiat wants to pay for the shares and what the trust’s administrators say they are worth is wide. After months of unsuccessful negotiations, the trust wants to establish the shares’ value in the stock market — and reap a windfall for part of its stake.þþ“It’s a very, very high-stakes battle going on here,” said Harley Shaiken, a professor at the University of California, Berkeley. “Both sides are being quite strategic, and we’ll see how it plays out.”þþOfficials for the trust, known as a Voluntary Employees Beneficiary Association, have declined to comment.þþSome industry analysts view the trust’s request for the stock offering as a negotiating tactic intended to force Fiat to pay a premium price for all its shares.þþIn a continuing court case about the valuation, Fiat has said the trust’s stake is worth about $3 billion. But the trust wants considerably more than that. “The union took a very high risk when it accepted shares in a bankrupt company four years ago to cover health care for retirees,” Mr. Shaiken said. “Now they want to share in Chrysler’s success.”þþBut proceeding with an initial public offering also poses potential problems for the company and the trust. Among the risks that Chrysler disclosed in its prospectus is the rupturing of its alliance with Fiat, which the American carmaker said would have “a material adverse effect on our business prospects.”þþProspective investors may also be wary of participating in a Chrysler offering because the natural buyer for the trust’s shares, Fiat, is not expected to participate. Even if a stock sale were to be completed, only part of the company’s shares would trade.þþThat could create sharp swings in the stock price, potentially lowering the company’s market value and affecting the worth of the trust’s remaining shares.þþChrysler, the third-biggest American carmaker after General Motors and Ford, has been surging the last two years. Its sales have increased on the strength of new products like the revamped Jeep Grand Cherokee sport utility vehicle. In the second quarter, its profits rose 16 percent, to $507 million.þþIts earnings have been a bright spot for Fiat, which has struggled with weak demand for new vehicles in its core European market.þþMr. Marchionne and Fiat’s board would like to buy all of the trust’s shares and consolidate the Italian and American companies into one global automaker.þþFiat already owns 58.5 percent of Chrysler’s shares, giving it undisputed control. A limited stock offering would not change that.þþBut if Fiat could gain 100 percent ownership, it could tap into Chrysler’s large cash reserves, integrate the two companies’ operations and cut overall costs.þþMr. Marchionne has not closed the door on further talks between Fiat and the trust over buying its entire stake. The trust, however, is not waiting for more negotiations. By requesting the stock offering, it could shore up its finances with more than $1 billion in cash to pay for the medical costs of retirees.þþThe Chrysler trust was created in 2007 when the U.A.W. agreed during national contract talks to set up health care trusts for retirees at each of the Detroit auto companies. Ford has financed its trust with cash and stock, and the bulk of the G.M. trust is backed by preferred shares.þþAt the time, the U.A.W. made the difficult decision to take 41.5 percent of the struggling automaker to cover Chrysler’s long-term obligations to its retirees.þþSteven Rattner, who led the auto task force that arranged the deal, said the union took a big risk — and now deserves to benefit from its faith that Chrysler could be revitalized.þþ“Chrysler equity was given to the health care trust in exchange for billions of dollars of obligations that the auto company had to the trust,” Mr. Rattner said by e-mail. “At the time taking that equity was a huge gamble for the workers, and I couldn’t be happier that it has worked out well for them.”þþJPMorgan Chase is leading the underwriting for the I.P.O.þ
Source: NY Times
