Chrysler files for IPO

James R. Healey and Chris Woodyard | USA TODAY

Chrysler Group on Monday made a government filing that could lead to an initial public offering of stock.

The company said in the filing that the number of shares to be sold and a price range haven't been set. JPMorgan is listed as the lead adviser.

All the shares to be sold would come from a 41.5% stake in Chrysler held by a United Auto Workers retirement trust, the filing says. The remaining 58.5% of the company is owned by Fiat, which got control of Chrysler in the 2009 government-sponsored bankruptcy reorganization.

The trust has said it wants to cash out so it is liquid enough to pay health benefits for the about 60,000 people it covers and to diversify.

The filing says, "We do not intend to pay any dividends in the foreseeable future."

If the Securities and Exchange Commission approves the registration, which could take several months, and a sale of shares takes place — which isn't guaranteed — it would be the first time since 1998 that all three Detroit automakers are publicly traded. Chrysler was bought by Germany's Daimler-Benz in 1998, then sold to private investment group Cerberus Capital.

Fiat and Chrysler CEO Sergio Marchionne has said he wants to buy the stake that the UAW Retiree Medical Benefits Trust got in the bankruptcy reorganization and merge the two companies into a single public company.

But the two sides haven't been able to agree on a price. It is the UAW trust that forced the issue, using a provision of the bankruptcy agreement that allows it to require registration for an IPO.

This can be seen as a negotiating tool. If Fiat wants all of Chrysler badly enough, it might boost its offer for the UAW trust's stake to avoid the sale of shares to the public, which would make it very difficult for Fiat to achieve the goal of 100% ownership of Chrysler.

Also, Chrysler would have to pay for the IPO — lawyers, advisers and others — but all the proceeds of share sales, according to the filing, would go to the UAW trust. That gives Fiat more motivation to avoid a public offering.

There also is a risk for the trust. The market, in the IPO process, might value the shares at less than the UAW trust expects. That would give Fiat a chance to renew its offer at what would seem a more favorable price for the buyer.

"The trust is looking for a windfall based on the current expected value of a publicly traded Chrysler," but that might not materialize, cautions Jack Nerad, executive editorial director and market analyst at auto researcher Kelley Blue Book.

He sees the combining of Fiat and Chrysler as a benefit to both automakers and to their current employees, while an IPO, in his view, could be a lose-lose situation for them.

While Marchionne has said he wants to merge the two companies, he has, over the months, declined to discuss some nuts-and-bolts details, such as where the merged company would have its headquarters — the U.S. or Italy? He has said, however, that the merged public company would trade in the U.S.

The companies and the trust haven't disclosed the specifics of their negotiations, although reports have put their valuations of Chrysler for purposes of setting a share price as far apart as $4 billion to $15 billion. The IPO process would allow the market to set a share price range.

As it stands, Fiat, under the bankruptcy agreement and outside of any IPO, has options to buy three more 3.3% stakes in Chrysler from the trust. When the two couldn't agree on a price for the first 3.3% portion, Fiat sued the UAW trust in Delaware Chancery Court. A judge this summer, however, declined to set a price, ruling that it should be settled in a trial. It could be 2015 before such a trial would begin — longer than Fiat's timetable for taking over all of Chrysler and longer than the trust wants to wait for cash.

In filing the documents with the SEC, Chrysler is following the path of General Motors, which conducted an IPO on Nov. 17, 2010, pricing its common shares at $33 and raising $20.1 billion. It took more than two years for shares to begin routinely trading for more than that initial price.

Before the GM IPO, taxpayers owned about 61% of GM because the U.S. Treasury took equity in exchange for money pumped into the failing car company in its bankruptcy reorganization to preserve jobs and the U.S. manufacturing base. After the government sold shares in the IPO, the taxpayers' share dropped to roughly 30%, and has been shrinking since then as the government sells portions of its holdings over time, and the Treasury said last week that its stake now is below 8%.

The two automakers' situations are different, though they arise from the same circumstance: their government-scripted Chapter 11 bankruptcy reorganizations in 2009.

But while in GM's case, the government took majority ownership, in Chrysler's case, it brokered a deal to put the company under the control of Fiat. The Italian automaker got a 20% stake in Chrysler and control in return for Fiat's promise to develop fuel-efficient small cars for Chrysler and to build them in the U.S., as well as to open its global distribution network to Chrysler.

Fiat was allowed to buy additional stakes as it met certain goals. When Fiat took its initial stake, the European auto market had not yet tumbled as the U.S. market had. Now, the U.S. market is strong, and Chrysler is the healthy partner.

But under the bankruptcy deal Fiat does not have access to Chrysler's cash. If Marchionne is able to merge the two automakers, money could flow freely between the two.