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Is this another sign Fiat is trying to sabotage Chrysler’s farcical IPO?

October 29, 2013
October 29, 2013

The looming IPO of America’s third biggest automaker could be one of the weirdest stock offerings in recent memory—If it actually happens.

Last month, in a rare example of a CEO making negative comments about his own IPO, Fiat boss Sergio Marchionne, who also runs Chrysler, was accused of (and later denied) talking down the Chrysler offering to analysts.

Now, changes to Chrysler’s latest S-1 filing released yesterday are adding to the widespread perception of tension between Chrysler’s two owners: Fiat, which holds 58.5% of the company, and the United Auto Workers union’s retirement trust, which picked up a 41.5% stake in a complex deal resulting from the firm’s 2009 government bailout.

The latest filing no longer describes Chrysler’s product innovation as “successful,” Bloomberg reports, and also makes some surprising admissions, including that its Jeep Cherokee 2014 model will be shipped to dealers later than expected. Of course, updates to S-1 filings are a normal part of the IPO process. But the modifications to Chrysler’s S-1, while small in the scheme of things, add to the overall intrigue about what might be the most elaborate bluff in corporate finance for some time. Chrysler declined to comment on the changes.

Remember,  Fiat management doesn’t actually want Chrysler to go public. Marchionne has made no secret of his desire to secure 100% ownership of Chrysler to fulfill his ambition of creating a bona fide global auto giant. But Fiat has been unable to agree terms with the unions for its stake, and the two parties are billions of dollars apart in valuation.

The unions also need to monetize their stake in Chrysler, which is looking increasingly healthy, and will report quarterly results tomorrow. Last month, the unions revealed a $3 billion funding shortfall in their obligations to retiree members. In an effort to maximize the value of their stake, the union trust forced Chrysler into preparations to sell 16.6% of it, with the hope of getting a better price from the public markets than from Marchionne.

Under Marchionne’s stewardship, the smallest member of Detroit’s “big three” has undergone quite a renaissance, returning to profitability in the past two financial years. Meanwhile, Fiat’s own fortunes have deteriorated, and Marchionne’s vision for the firm increasingly depends on access to Chrysler’s growing cash pile.

Whether the company follows through with the IPO remains doubtful. The filing (p. 28) even admits that it could damage the Fiat-Chrysler alliance, which is in no one’s interest. It would be much simpler to sell out to Fiat, and Marchionne is no stronger to brinkmanship: In a similar stand-off in 2004, he stared down General Motors and didn’t blink. The union’s threat may ultimately yield a resolution. But with any IPO not expected to take place until next year, it won’t be for a while.

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