Last updated: November 25, 2013 11:14 pm

Fiat damps Chrysler IPO speculation

A worker installs a part while working on the assembly line at the Toledo Assembly Complex©Getty

Italy’s Fiat moved to scotch speculation that an initial public offering of its Chrysler US subsidiary could be imminent, saying on Monday that the Chrysler board had determined it would not be “practicable” to launch an IPO before the end of the year.

The delay buys more breathing space for Sergio Marchionne, chief executive of both Fiat and Chrysler, to agree on a price for Chrysler with the United Auto Workers’ healthcare trust, Veba, which owns a minority stake in the company. Mr Marchionne would rather Fiat purchase Chrysler outright than float it.

Talks between Fiat and the trust have started to gain traction in recent weeks, a person with knowledge of the discussions told the Financial Times.

Fiat’s statement came after reports that bankers were working towards a Chrysler IPO that could take place in the coming weeks. The company released an updated securities filing late on Monday, adding it planned to list on the New York Stock Exchange.

A person familiar with the possible offering suggested that a failure to resolve a routine tax issue had contributed to the delay.

The episode is the latest development in the complex series of efforts by Fiat, which controls 58.5 per cent of Chrysler, to agree a price to buy the remaining shares in the company held by Veba, which stands for voluntary employees’ beneficiary association.

Mr Marchionne had long made it clear – including in the IPO offer document published in September – that he regarded an IPO for Chrysler as a poor solution to the dispute between Fiat and Veba over the price of the shares.

An IPO would create a small free float, of around 16 per cent of the shares, but would also force Fiat to treat Chrysler as an entirely separate operation with separate quarterly financial reports and the other burdens of an independently listed company.

Fiat has long wanted to turn Chrysler – whose Ram pick-up trucks and Jeep sports utility vehicles have been among the great successes of the past two years’ resurgence in US auto sales – into a fully integrated subsidiary.

But the Italian company has been obliged to start preparations for an IPO because of clauses in the shareholder agreement which required Chrysler to prepare an offering if the two sides could not agree on a price for the shares.

“Fiat remains supportive of Chrysler group’s efforts to meet its contractual obligations to the Veba and expects Chrysler group to continue working on the necessary steps to enable an IPO to be launched in the first quarter of 2014,” Fiat said. “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 started making the preparations for an IPO after the breakdown of talks over the value of Veba’s stake in Chrysler, which Fiat had put at about $2bn and Veba had put at $4bn. The latter number implies a valuation for the whole company of as much as $10bn. A court case in July in Delaware proved inconclusive and a definitive decision is unlikely to be reached until well into next year.

However, one person familiar with the situation recently said Chrysler was now aiming for a valuation of about $10bn-$11bn for the IPO, suggesting that last year’s sales success has closed the gap between Fiat’s and Veba’s estimate of the company’s value.

The person cautioned, however, that the situation between Chrysler and Fiat remained fluid and that it remained possible the two sides would strike a deal over the sale of the shares.

JPMorgan Chase and Bank of America Merrill Lynch are leading the offering, while Barclays, Goldman Sachs, Morgan Stanley and UBS are also underwriting the deal. Deutsche Bank is understood to be working with Veba.

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