Fiat boss Sergio Marchionne's decision to push ahead with a Chrysler IPO he does not want has raised the stakes in a buyout dispute with the U.S. automaker's minority shareholder -- as well as for his own legacy.
It may be one of the consummate dealmaker's biggest bluffs yet, bankers and analysts said on Tuesday.
Chrysler, 58.5 percent-owned by Italy's Fiat, filed paperwork late on Monday in a step toward the sale of shares held by the UAW, which owns the rest of Chrysler through its retirees' health care trust.
Marchionne is proceeding with the initial public offering demanded by the union, after the two sides failed to agree on a buyout deal in more than a year of talks.
Fiat needs full Chrysler ownership to fund an ambitious recovery and expansion program with the U.S. automaker's cash.
But the Chrysler filing raised eyebrows by informing potential investors that Fiat was "reconsidering" the entire tie-up and warned that the group may be harmed by a share sale.
Fiat would also be free to sell Chrysler following the stock sale, the 390-page document says.
"Fiat's talk about scaling back the alliance with Chrysler is simply that, just talk," said an analyst with a Milan brokerage.
By raising the prospect of an aborted merger, Marchionne may hope to pressure the union into a compromise buyout deal, or reduce the Chrysler valuation that emerges from the IPO process.
Marchionne has been holding out for a lower buyout price than the UAW is seeking -- thought to be well over $5 billion -- at the risk of more damaging delays to his industrial plans.
Hanging in the balance is the completion of a trans-Atlantic tie-up already five years in the making, which has shielded Fiat from a European slump that has threatened some of its peers.
Marchionne, the 61-year-old former aluminum boss, is no stranger to tense backroom talks.
In 2005, soon after joining as CEO, he persuaded General Motors to pay Fiat $2 billion not to exercise an option to sell its auto division to the U.S. automaker.
Four years later he took control of bankrupt Chrysler through an initial 20 percent stake, stepping in after rival CEO Carlos Ghosn got cold feet over a similar cash-free deal he had negotiated for Nissan.
More recently, Marchionne has pulled off the Italian carmaker's separation from Fiat Industrial and the agricultural machinery maker's subsequent merger with CNH -- after sweetening a buyout offer to minority investors.
That was supposed to be a template for Fiat-Chrysler, down to its primary stock market listing in New York.
But Chrysler's minority shareholder is proving troublesome, and Marchionne is struggling to deliver the final act.
In his tussle with the UAW's representatives, Marchionne's hand -- and his take-it-or-leave-it bluster -- could be undermined by financial realities.
"It's highly unlikely that Fiat could ever walk away," said George Galliers, a London-based analyst with ISI Group.
"That would just leave them back where they were, with a very broken European business," he said. "For Marchionne's credibility and the Fiat equity story, the damage would be irreversible."
Chrysler's first-half performance accounted for more than half of the combined group's revenue, transforming what would have been a 501 million euro ($676 million) loss for Fiat alone into a 435 million euro profit.
Furthermore, Chrysler's cash and industrial scale are critical to Marchionne's expansion plan for the Alfa Romeo and Maserati brands, designed to help Fiat's idle Italian plants export their way out of trouble.
The language and tone of the Chrysler filing seems designed to deter investors from subscribing to the IPO in the hope of an eventual buyout premium from Fiat, Galliers and other observers said.
"If you're swapping a long-term shareholder like the VEBA (union trust) for a bunch of speculators, the danger is you'll have a book full of hedge funds that just want to cause trouble," said a Milan banker close to the Italian carmaker.
Marchionne is more likely to head off a listing with an eleventh-hour deal to buy part or all of the UAW stake, some analysts predict. He recently hired Ron Bloom, who brokered Chrysler's 2009 rescue for the U.S. government.
Under complex agreements dating from Chrysler's rescue, Fiat has the right to buy up the UAW stake for a predefined price that rises each year and currently stands at around $6 billion.
Fiat also has call options on five tranches of union-held shares that amount to 16.6 percent of Chrysler but are subject to a lawsuit over the strike price. The trust's IPO request covers another portion of its holding, also 16.6 percent.
Based on rival automakers' market valuations and expected 2014 earnings, the UAW's 41.5 percent Chrysler stake is worth about $5.6 billion, UBS estimated on Tuesday.
Accounting for Fiat's call options and progress of the related Delaware court dispute, any comprehensive buyout deal is likely to come in close to $4.9 billion, said Philippe Houchois, a London-based analyst with the bank.
The eventual outcome, and the price Fiat pays, could cement or challenge Marchionne's reputation as one of the auto industry's most accomplished dealmakers.
Completing the buyout and merger may also be his last big stunt for Fiat and its controlling Agnelli family. Marchionne has said he intends to retire in 2015.
And because Ghosn had turned Chrysler down, the fate of its merger with Fiat has added piquancy for Marchionne's already fierce rivalry with the Renault-Nissan alliance CEO.
Ghosn has been known to describe his Fiat counterpart as "the jeans salesman," while Marchionne has retorted with "the Sun King", according to those around them.
Marchionne "wants to be known as the CEO who conquered the car business just like Carlos did," said one person who has worked closely with the Fiat boss and witnessed first-hand his handling of the Chrysler takeover.
"And he's doing it from the most unlikely company -- Fiat."