If Fiat wants a 3.3 percent stake in Chrysler currently held by the UAW’s healthcare trust, it’s going to have to pony up some serious cash, again. Fiat’s initial offering of $139.7 million is “substantially below fair market value,” according to documents filed in a Delaware court and obtained by Automotive News. Now, the UAW trust is seeking Fiat to pay $342 million, or one and a half times more than the original bid, as claimed in a countersuit filed Monday. The countersuit comes almost two months after Fiat presented the trust with a suit for failing to sell its shares in Chrysler.
“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 as obtained by Automotive News.
The initial offering from Fiat was calculated with a formula that values Fiat and Chrysler at the time each automaker were joined together in 2009. The issue at hand now is that Marchionne would like to buy the trust’s 41.5 percent stake in Chrysler. Acquiring that remaining stake would give Fiat full control of Chrysler and then allow the automakers to merge the remainder of the operations. Currently, Fiat owns a controlling stake in Chrysler. The additional stake would raise Fiat’s claim in Chrysler from 58.5 percent to as high as 75 percent. If Fiat can acquire the entire company, it can reorganize debt and streamline Chrysler’s profits to help bail out the water that Fiat is currently taking on in Europe.
The UAW Health Trust proclaimed that its purpose is to maximize its stake in Chrysler so it can cover rising health costs for current employees and retirement benefits for those no longer working. The trust, known fully as voluntary employees beneficiary association, or VEBA, originated in 2007 when Ford, General Motors, and Chrysler were no longer required to foot the medical bills and other benefits to those who retired while under contract with the UAW. When GM and Chrysler went through government-structured bankruptcies, VEBA stepped in and bought up stakes of each company instead of receiving the cash it was intended to receive from the automakers. Fiat agreed, as part of the bankruptcy deal, to purchase pieces of the UAW Health Trust stake, which overseas benefits for 824,000 retires from the Big Three.
This countersuit is the latest speed bump between the UAW Health Trust and Fiat CEO Sergio Marchionne. As the boss of both Fiat and Chrysler, Marchionne has been no stranger to this tiff with the UAW Health Trust. Marchionne and the trust are debating over Chrysler’s value as it stands alone or if it should be looked at as a subsidiary of Fiat. When the Italian automaker took control of Chrysler back in 2009, it was the stronger of the two but now those roles have reversed. Chrysler has enjoyed a comeback while Fiat has struggled along with the European economy. At the end of the third quarter, Fiat had 20 billion euros (just over $25 billion) available, down from 22.7 billion euros ($28.8 billion) at the end of the second quarter. Fiat turned in a third-quarter trading profit of $164 million while Chrysler handed in a trading profit of $706 million.
Fiat is claiming that a clerical error in the agreement upon Chrysler’s value to Fiat North America, while it was actually meant to be Fiat S.p.A. The UAW trust isn’t buying it, however. A case management hearing is expected to be set up in a Delaware court so the next direction can be calculated. All parties involved have agreed to have the suit heard in front of a judge but without a jury present. The case is being heard in Delaware’s Court of Chancery, which is known for its speedy process, and a variety of things could happen. Judges can use their discretion to simply impose penalties, postpone a deadline, or can take a harsher route and demand payment. Fiat is currently losing money and being forced to pay the trust isn’t the most favorable of outcomes.
“We hope the legal proceedings will conclude by the end of the year,” Fiat CFO Robert Palmer said to Automotive News.
Even with the current legal proceedings that are ongoing, Marchionne and Fiat plan to continue increase ownership in Chrysler every six months. Marchionne has made it known that he wants to merge Chrysler and Fiat by 2015. Chrysler can sell 3.3 percent to Fiat every six months all the way up through the first half of 2016 or until it hits the 16.58 percent cap, the most allowed under this type of acquisition.
Source: Automotive News (subscription required)