Q&A: Chrysler IPO

An IPO of Chrysler will not take place this year, its parent Fiat said on Monday, cooling speculation that the US carmaker's return to the public market was imminent, and buying more time to find a private solution to a long and bitter battle over the ownership of the company.

How is Chrysler doing?

Bankrupt in 2009, the US's third-largest carmaker is back to rude health thanks to a resurgent US car market and a renewed demand for SUVs and pick-up trucks, two specialities for the company. Many people thought Fiat was taking a gamble when it agreed to try to nurse Chrysler back to health after its Chapter 11 filing, but the tables have since turned and now the US carmaker's profits are propping up its Italian owner's bottom line as it stomachs big losses in Europe.

What is the shareholding battle about?

Fiat holds 58.5 per cent of Chrysler. A retiree healthcare fund, Veba, owns the rest, thanks to a complex agreement brokered by the US government to get Chrysler on its feet again. Part of Veba's holding has been pledged to Fiat, but the two sides are in a court battle over how much the Italian carmaker should pay. Complicating the fate of the remaining shares is Veba's decision in September to request Fiat to prepare a listing for some of the shares. Veba now has a choice: push ahead with the public offering, or reach a private deal with Fiat.

What does each side want?

Sergio Marchionne, chief executive of both Fiat and Chrysler, wants the Italian company to buy Veba's entire stake and make Chrysler a fully owned subsidiary, avoiding an IPO. The Italian carmaker is in trouble, too small and too reliant on Europe's grim car market, and need's Chrysler's cash flow and scale. Without Chrysler, it would have made a loss of €247m last quarter - instead the combined companies turned profit of €189m. A full merger would create a large, global company with sufficient sales to take on the likes of General Motors and Toyota. On the other side, Veba is not keen to be a long-term holder of Chrysler shares, but is determined to get the best price possible for its stake. As far as it is concerned, it took a big risk accepting shares in the troubled carmaker instead of cash, and now wants the reward.

How much is Chrysler worth?

People close the situation have said the company is aiming for a valuation of between $10bn and $11bn. However, these people cautioned that valuing the company has been a difficult tasks for analysts, given Fiat's interest and complicated pension liabilities that are difficult to value. Under the 2009 agreement, Veba can get a maximum of $5bn for its 41.5 per cent stake, but Mr Marchionne has laughed off that price, advising the trust to "buy a lottery ticket" instead. Fiat had initially put the value of the Veba stake at about $2bn.

Why does Fiat need to make a deal soon?

Europe is not going to get better anytime soon, and Fiat's profits from Latin America are falling. Fiat hopes that Chrysler's cash and a joint product drive can inject some life into its tired-looking product pipeline and get sales moving again. Further, Fiat has debt issues, with net industrial debt of €8.3bn at the end of September, up $1.6bn in just three months. As Chrysler's return to full health continues, Veba's stake only gets more expensive, and Fiat's possible extra borrowing rises.

Why does Fiat want to avoid an IPO?

Mr Marchionne is convinced that the synergies he needs to make the most of Fiat and Chrysler can only come with a full merger. A listing would complicate any effort to acquire the remaining stake and disrupt financial integration.

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Why the delay now?

While Mr Marchionne wants to buy Veba's stake privately, he also knows that an IPO would settle the valuation question once and for all. The question is which route allows him to conclude a deal fastest. Despite statements in recent weeks suggesting he is resigned to an IPO, Monday's announcement suggests he may be more confident that an agreement with the trust could be reached, given the extra time.

What do people close to the deal say?

The negotiations between the parties have taken on element of a poker game, people close to the deal have said. Even as the company gets closer to an IPO, they say that a move by Fiat to purchase Veba's stake could come at any moment in the process.

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