Investors looking to buy shares of new Chrysler stock as part of an IPO this year are going to have to rethink their investment strategy, as the company won’t be conducting that offering until next year.
Fiat – which owns 58.5 percent of Chrysler and assumed management of Chrysler in 2009 as part of the Auburn Hill automaker’s bankruptcy restructuring – said today that Chrysler’s board “has determined that it will not be practicable” to launch and complete the IPO before the end of the year. Chrysler will continue readying for a first-quarter 2014 launch of the IPO.
“No assurance can be given as to whether or when an offering will be launched, as any launch will be subject to market conditions and other relevant considerations,” Fiat said.
A key component of the offering was Fiat buying out the 41.5% of Chrysler owned by the United Auto Workers’ health care trust. However, the trust, which pays medical expenses for retired hourly workers, has been unwilling to sell its portion of the company to Fiat.
The trust wants Fiat to offer part of its shares up to the public. The bottom line is that it doesn’t think that Fiat’s initial offer was high enough. Reports had Fiat offering the UAW between $1.5 and $2.5 billion initially. The UAW wanted more than double that, according to the reports.
Sergio Marchionne, the man who leads both Fiat and Chrysler, filed the paperwork for the IPO in an attempt to move along the negotiations by determining an approximate value for the company.
Last week, several reports said Chrysler’s IPO valuation was expected to be $10 billion. That would value the trust’s stake at around $4.1 billion, less than what the UAW wanted Fiat to pay.
(Chrysler wants IPO ready by year’s end. For more, Click Here.)
The company has also filed a lawsuit to get a judgment on the value of the stake, but that trial will not begin until September 2014.
Marchionne wants to formally merge the companies in order to bolster Fiat, which is suffering due to sluggish sales in Europe. The profits from Chrysler have been used to help Fiat.
(Click Here to read about Chrysler’s third-quarter earnings.)
Chrysler earned $464 million last quarter on U.S. sales of the Ram pickup and Jeep Grand Cherokee, its ninth-straight profitable quarter. The results boosted Fiat, which earned $260 million in the third quarter. Without Chrysler’s contribution, Fiat would have lost $340 million.
Fiat initially acquired a 20% stake in the U.S. maker following Chrysler’s emergence from bankruptcy in mid-2009. Through a series of steps it has increased its current holdings to 58.5%.