UAW trust demands Fiat pay $342 million for Chrysler stake
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DETROIT (Reuters) -- Fiat must more than double its offer for a 3.3 percent stake in automaker Chrysler Group that is held by a union-related trust, the trust claimed in a countersuit filed on Monday.
Fiat's offer of $139.7 million is "substantially below fair market value," the UAW-affiliated trust said in documents filed in Delaware's Court of Chancery.
Fiat must pay at least $342 million for the stake, the UAW trust said in its response, which came nearly two months after Fiat sued the trust for failing to sell the shares.
"Sale of the called shares at the price calculated by Fiat would constitute a transaction prohibited by applicable federal law," the UAW Retiree Medical Benefits Trust said.
The lawsuit was the latest twist in a long-running dispute over the value of Chrysler between the UAW trust and Sergio Marchionne, CEO of Chrysler and Fiat.
Marchionne is looking to buy the trust's entire 41.5 percent stake in Chrysler, cementing Fiat's ownership of the company and allowing the automakers to eventually merge.
The trust said it has a duty to maximize the value of its Chrysler stake to cover rising health care costs for the automaker's retirees.
One point of contention is whether Chrysler's value would be determined in relation to Fiat or Fiat's parent.
Fiat claimed that a clerical error in the agreement linked Chrysler's value to Fiat's North American unit, even though the parties intended it to be the parent. The UAW trust disagreed.
Also at issue in the case is the agreement’s methods for assessing the shares’ value given Chrysler’s rebound, said Richard Hilgert, an analyst for Morningstar Equity Research in Chicago.
“What the UAW is trying to do is get the court to look at what the performance of Chrysler has been since Marchionne and his management team took it over,” Hilgert said. “The cash flows that are being generated out of Chrysler now are such that the UAW feels a more appropriate valuation for the company would be the higher amount that they’re proposing.”
The trust, which is known as a VEBA or voluntary employees beneficiary association, was created in 2007 to let General Motors, Ford Motor Co. and Chrysler shed their obligation to pay lifetime medical benefits for their UAW retirees.
In 2009, when GM and Chrysler underwent government-funded bankruptcy restructurings, the UAW VEBA took stakes in the companies instead of the promised cash payments.
As part of the bankruptcy agreement, Fiat is able to exercise call options to buy portions of the stake held by the health care trust, which manages benefits for 824,000 retirees from GM, Ford and Chrysler.
Fiat and the UAW trust declined to comment on the countersuit, which was brought by Brock Fiduciary, which manages the Chrysler stake.
The increases could raise Fiat's stake in Chrysler from 58.5 percent to as much as 75 percent, advancing Fiat's ambition of eventually merging the two companies.
The $139.7 million figure was reached by using a formula set up when Fiat took control of Chrysler as it emerged from bankruptcy in 2009. But other Chrysler shareholders have objected to the price and the dispute has ended up in court.
While Fiat already has management control of Chrysler, owning the entire company would allow it to restructure debt and ensure that Chrysler generates enough cash to support Fiat's loss-making European operations, analysts said.
"We believe it is in both sides' interests to find a way forward, and we believe it is inevitable that Fiat will eventually fully consolidate Chrysler and move to restructure debt and pool cash," Bernstein Research analyst Max Warburton wrote in an October 10 report.
Role reversal
Fiat was the stronger of the two automakers in 2009 but those positions have been reversed, due largely to the economic crisis in Europe. Last month, Fiat Group Automobiles reported a third-quarter trading profit of 128 million euros ($164 million) while Chrysler reported a trading profit of $706 million (551 million euros).
"When we signed the damn thing in 2009 it was clear," Marchionne told reporters on October 8 in Columbus, Ohio. "Today, now that things have changed and we're making some money" at Chrysler, VEBA and Fiat disagree on how the six-month tranches should be priced, he said.
“We’re quite willing and capable and able and we’re standing by our call options to exercise them as they become due,” Marchionne said on Chrysler’s quarterly conference call Oct. 30.
He said he’s still targeting the “unification” of Fiat and Chrysler by 2015.
Fiat has said that it will increase its controlling stake in Chrysler to 62 percent after completing the first call option purchase from the trust. The Delaware Chancery Court may rule on the matter by the end of the year, Marchionne said in the conference call.
The parties agreed to have the dispute heard in the non-jury Court of Chancery, popular for its speed and business expertise. Judges have a wide array of options at their disposal to achieve fairness. They can impose penalties, postpone deadlines, order payments.
"We hope the legal proceedings will conclude by the end of the year," Fiat CFO Robert Palmer said on a conference call on October 30.
Fiat can buy up to 3.3 percent of Chrysler every six months through the first half of 2016, or until it reaches the 16.58 percent cap for this type of share purchase.
Marchionne said he would continue to incrementally increase ownership in Chrysler every six months.
"The objective has always been to try and bring unification by 2014 or 2015," Marchionne said on October 30. "I'd still like to see that done."
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