Fiat, trust differ over Chrysler stock value
 | Marchionne: Hardened stance |
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Editor's note: An earlier version of this story carried a possibly misleading attribution on the maximum value of the VEBA's stake in Chrysler. The bullet point below has been clarified further.
The trust that manages health care for Chrysler retirees wants Sergio Marchionne to pay as much as possible for the trust's pool of Chrysler stock.
Marchionne -- in his role as CEO of Fiat S.p.A., which owns 58.5 percent of Chrysler -- wants to pay as little as possible.
That's the essence of a battle shaping up between the UAW retiree health care trust -- known as the UAW Voluntary Employees' Beneficiary Association -- and Marchionne.
Late last month, Marchionne hardened his position when Fiat filed suit in Delaware asking a judge to set a value of the Chrysler stock held by the VEBA. Fiat wants to exercise an option for 3.3 percent of Chrysler's stock held by the VEBA.
The trust's pool of Chrysler shares accounted for about a third of the fund's assets in 2010. So the value of the stake bears significantly on the financial health of the trust and its ability to meet its long-term obligation to pay the health care bills for 65,000 retirees and their spouses.
Here are the key numbers in the face-off:
• 3.3: the percentage of Chrysler stock Fiat wishes to purchase from the VEBA. That's a small portion of the 41.5 percent of the Chrysler shares held by the VEBA.
• $139.7 million: the amount that Fiat wants to pay for the additional shares, which would raise its ownership of Chrysler to 61.8 percent.
• $2 billion: The difference between two prices -- the $5 billion maximum value of the VEBA’s entire 41.5 percent stake in Chrysler, according to market sources; and the $3 billion maximum price that the VEBA could get from Fiat under the terms of its original 2009 agreement, according to Marchionne.
Marchionne said Fiat turned to the Delaware court after Fiat and the VEBA were unable to agree on a price for the 3.3 percent stake. He later told reporters that the litigation would not affect Fiat's planned merger with Chrysler, expected in 2014.
A spokesman for the VEBA said the trust "will be making no public statement" and referred any questions to Brock Fiduciary Services, a third-party fiduciary that oversees the VEBA's current 41.5 percent of Chrysler stock.
A spokesman for Brock in New York said the fiduciary would have no comment.
The legal dance between Fiat and the UAW comes on the eve of the trust's opportunity to require Fiat to take Chrysler public by forcing registration of its remaining equity stake, perhaps as early as January.
The 2009 master agreement involving Fiat, the VEBA, and the Canadian and U.S. governments grants the health care trust the right to sell its remaining ownership of Chrysler on the open market beginning in 2013. That means that the VEBA can force Chrysler to go public next year.
While the stock remains unlisted, it can't be sold publicly to pay the bill for benefits and expenses. The plan paid out more than $685 million in benefits and expenses in 2010, the most recent year for which data are available.
The legal dispute between Fiat and the VEBA boils down to money, said analyst Joe Phillippi, of Auto Trend Consulting.
Phillippi said investment bankers counseling Fiat and the VEBA are going to have different opinions on the value of Chrysler, especially considering the automaker's impressive 30-month run of year-over-year sales gains.
Phillippi said: "Clearly, the parties are quite far apart, and it's likely to stay that way for a while."
You can reach Larry P. Vellequette at lvellequette@crain.com.
