Chrysler Group filed paperwork for an initial public offering on Monday, a move that is expected to pave the way for a merger between the company and Fiat S.p.A.
Chrysler's minority shareholder, a UAW retiree health care trust fund, decided in January to sell part of its 41.5 percent stake in the company in an IPO.
The health care trust is offering $100 million of shares, according to the regulatory filing. The filing didn't say how many shares will be offered or at what price. The offering size is a placeholder amount used to calculate fees and may change.
Sergio Marchionne, CEO of Fiat and Chrysler, and the UAW health care trust, are locked in a dispute over Chrysler's value.
The IPO would help put a value on Chrysler.
Fiat is seeking to buy the trust's stake and merge the two companies to create a global player with the scale to compete with industry leaders Toyota Motor Corp., General Motors and Volkswagen AG.
The health care trust, which is legally allowed to initiate the sale as part of its ownership agreement, is selling all of the shares in the offering. Chrysler and Fiat will not receive any proceeds from the sale, according to the filing.
The trust, a voluntary employee beneficiary association, is seeking a price for its Chrysler stake that is at least $1 billion more than Fiat wants to pay.
“They’re going to go through the motion of an IPO to come up with a market valuation on Chrysler,” said Richard Hilgert, an analyst with Morningstar Inc. in Chicago. “Then the UAW VEBA is going to use this as a basis for negotiations with Fiat to determine what price Fiat should pay for the UAW’s stake.”
Marchionne said this month that the UAW’s trust “should buy a ticket for the lottery” if it wants to get at least $5 billion for its holding. Fiat has the right to buy the entire stake for $4.25 billion, plus 9 percent annual interest calculated from January 2010. The trust received the holding as part of Chrysler’s government-backed bankruptcy in 2009.
Fiat has already exercised options to buy 10 percent of Chrysler from the VEBA and has rights to buy an additional 6.6 percent next year. Fiat has yet to take possession of the holding as the two sides fight in court over the price of the stake.
“This is a way to try to determine what a potential fair value might be,” said Matthew McCormick, a Cincinnati-based fund manager at Bahl & Gaynor Inc. that doesn’t Fiat in the $9.6 billion of assets it oversees. “However there are a lot of moving parts before that fair value is determined.”
Fiat already relies on Chrysler to sustain the group’s profit amid losses in Europe, where the car market is on pace to fall a sixth straight year to the lowest since region wide record keeping began in 1990.
The Fiat Group's net income, including minority holdings, totaled 1.41 billion euros ($1.9 billion) in 2012. Without Chrysler, Fiat would have posted a 1.04 billion-euro loss.
Fiat started accumulating Chrysler stock in June 2009 as part of the government and labor-union bailout of the U.S. carmaker, which was losing as much as $100 million a day at the time.
Rather than paying cash for the initial 20 percent holding and subsequent 15 percent stake, Fiat provided management experience and technology and helped Chrysler meet various performance milestones, such as developing models.
If the SEC approves the IPO and the sale of Chrysler shares takes place, it would mark the first time since 1998 that the Detroit 3 have been publicly traded. Chrysler merged with Germany's Daimler-Benz in 1998, forming DaimlerChrysler, and was later sold to private investment group Cerberus Capital.
It has been under Fiat control since 2009 when it emerged from a government-supervised bankruptcy and restructuring.
General Motors raised $20.1 billion when it went public at $33 a share on Nov. 17, 2010, after a similar turnaround.
