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Sergio Marchionne, left, CEO of both Fiat and Chrysler, has long wanted to merge the two auto makers but has said he would be open to an IPO. (DENIS BALIBOUSE/REUTERS)
Sergio Marchionne, left, CEO of both Fiat and Chrysler, has long wanted to merge the two auto makers but has said he would be open to an IPO. (DENIS BALIBOUSE/REUTERS)

Chrysler invites IPO pitches, leaves door open to Fiat buyout Add to ...

U.S. car maker Chrysler Group LLC has asked banks to pitch next month for a mandate to run a potential public listing of its shares, four people familiar with the matter said, as parent Fiat SpA wrangles with minority shareholder VEBA over a possible buyout.

Chrysler will interview investment banks in April for a underwriting role in a proposed initial public offering, people familiar with the matter told Reuters on Thursday.

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Three of the people said bankers had been asked to prepare a “dual-track” sale leading either to the flotation of Chrysler shares owned by a United Auto Workers union retiree health-care trust, VEBA, or an agreed buyout of its stake by Fiat.

Fiat owns 58.5 per cent of Chrysler, while the other 41.5 per cent is owned by VEBA.

A Chrysler Group spokesman said he had not heard of an April meeting of bankers for an IPO. Fiat declined to comment.

Fiat’s shares rose 1 per cent on Thursday, outperforming the Milan stock exchange which rose 0.3 per cent.

Sergio Marchionne, chief executive of both Fiat and Chrysler, has long wanted to merge the two auto makers but has said he would be open to an IPO if Fiat and VEBA could not reach a deal.

Fiat has options to buy blocks of shares from VEBA, but its attempts to exercise them has been contested in court over their valuation. An IPO pitching process could provide a way of independently valuing the company and settling the argument.

Fiat has no intention of reducing its ownership, said the sources, who asked not to be identified because the discussions are private.

Mr. Marchionne said earlier this week that he expected to reach a deal with VEBA and avert a public listing.

Talks are also starting on how Fiat would finance any future takeover of Chrysler, the people familiar with the matter said.

Under a deal struck in 2009, when Fiat rescued Chrysler from bankruptcy, the Italian car maker has options to purchase up to 16.6 per cent from VEBA at a price set by an agreed formula. But the two sides have been arguing about the arithmetic for months.

Fiat filed last July to buy the first 3.3 per cent for $139.7-million (U.S.), but VEBA said the transaction value was $342-million, and the issue has been in court ever since.

In January, VEBA said it would exercise a separate entitlement to sell Chrysler shares in an IPO, formally asking the company to register with the U.S. Securities and Exchange Commission for a 16.6-per-cent issue.

Fiat has valued Chrysler at $4.2-billion in court filings, way below VEBA’s $10.3-billion figure. UBS AG put the U.S. car maker’s worth at around $9-billion in November.

Richard Hilgert, a Chicago-based analyst with Morningstar, estimates the value of Chrysler to be $13.5-billion, he said on Thursday.

But he cautioned that watching the drama of the court case or a possible IPO misses the point when each are expected to be factors in the major goal of Mr. Marchionne’s that Fiat buy Chrysler outright.

“I don’t think an IPO’s going to happen,” Mr. Hilgert said, and noted that Mr. Marchionne has clearly stated he would prefer that Fiat buy Chrysler.

The IPO process could still help set a market price for the contested 16.6 per cent of the company Fiat wants to buy in accordance with the 2009 bankruptcy exit agreement.

Under Mr. Marchionne, Chrysler has rebounded from a company near death to one that is making enough profit to buoy the health of its parent, Fiat, which has been losing money largely due to a sick European economy.

In its home U.S. market, Chrysler has had year-over-year sales gains for 35 straight months.

Mr. Marchionne in the past has proven to be a tough negotiator.

In 2009, he was able to convince the U.S. government to allow Fiat to take control of Chrysler on the promise that the Italian company could make Chrysler more competitive globally and that it would help fix the problem Chrysler had with making quality small cars.

And in 2000, Mr. Marchionne extracted $2-billion from General Motors Co. by outbluffing GM, which at the time was the world’s largest auto maker. Fiat and GM were then in an alliance, and Fiat had the right to call a put option to sell 90 per cent of Fiat to GM.

GM was not eager to own Fiat, and agreed to Mr. Marchionne’s demand rather than settle the issue in court.

The listing process launched by Chrysler may provide more clarity on how Wall Street values the company, people involved in the preparations said.

“The upside could be that there’s a clear market price for Chrysler, and no more haggling about prices as Fiat moves to bring it under complete control,” said one of the people.

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