Tags: IPO | Chrysler | Fiat | unions

Chrysler Banks Said to Weigh IPO Valuation of About $10 Billion

Thursday, 21 November 2013 04:04 PM

Chrysler Group LLC’s advisers are discussing a valuation of about $10 billion for the carmaker before an initial public offering that could take place next month, people with knowledge of the matter said.

Investment banks working on the IPO have considered a range from $9 billion to $16 billion, said one of the people, who asked not to be identified as the information is private. The advisers are currently focusing on a range of about $10 billion to $11 billion for the IPO, said another person. Talks are fluid and the final number could change.

Determining a valuation is a key step in efforts by a United Auto Workers retiree trust to sell a stake in the company in an IPO or a sale to Fiat SpA. The trust and Fiat, Chrysler’s majority shareholder, have been disputing the company’s value as Sergio Marchionne, chief executive officer of both carmakers, seeks to buy the trust’s stake.

At the $10 billion valuation, the 41.5 percent of Chrysler owned by the UAW trust is worth about $4.2 billion, which is less than what analysts expect Fiat to pay for the stake. Marchionne has offered the trust about $1 billion less than what the labor group is asking, and the UAW “should buy a ticket for the lottery” if it wants $5 billion or more.

Renewed Talks

The IPO process could give the sides a new basis for negotiation, and Fiat is ready to begin talks with the UAW as soon as the price range is public, two people said. Chrysler may begin formal meetings with potential IPO investors the first week of December, and would outline the valuation in a regulatory filing before that, said the people.

“One of the things I hope is that it will become very clear exactly what the markets think Chrysler is worth, which is the only real reference point,” Marchionne told reporters last month. “There’s a pretty clear process that leads to the IPO, and it places clear road markers that can be recognized by both sides.”

The IPO value may be below what Chrysler is worth in a sale to Fiat, which already owns 58.5 percent of the U.S. company, because stock investors typically demand a discount that reflects the risk of buying into a new share sale. The trust, which is the only seller of shares in the IPO, may not proceed with the offering if the valuation is too low, two people said.

Market Process

Chrysler may be valued at $13.5 billion, which would make the health fund’s stake worth about $5.6 billion, according to estimates by UBS AG analyst Philippe Houchois. Fiat may end up paying $4.9 billion to buy the holding because of an option allowing the Italian carmaker to purchase part of it at a lower price, Houchois wrote in a report in September.

JPMorgan Chase & Co. and Bank of America Corp. are leading the offering, with Goldman Sachs Group Inc., Morgan Stanley, Barclays Plc and UBS also serving as underwriters, people with knowledge of the matter said. Deutsche Bank AG is advising the union, another person said.

Spokesmen for Fiat, Chrysler, the UAW and the investment banks declined to comment.

The trust needs to maximize the value of its stake to pay for retirees’ medical care. The trust estimated in a filing last month that those costs will be $3.1 billion more than its assets are worth. Marchionne is eager to avoid over-paying so the automakers have as much money as possible to invest in new vehicles.

Control of Chrysler would give Fiat access to the U.S. company’s $11.9 billion in cash to help fund a turnaround in Europe, where the Italian company is wading through a deep downturn. Profits from Chrysler have made up for Fiat’s losses on the continent, where auto sales are running at the slowest pace in 20 years.

The two entities received their stakes as part of Chrysler’s 2009 government-backed bankruptcy. While Fiat has the right to buy the stake for about $6 billion, Marchionne has said that he’s seeking to pay much less. The two sides have taken their dispute over the valuation of some of the stake to court in Delaware.

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Chrysler Group LLC's advisers are discussing a valuation of about $10 billion for the carmaker before an initial public offering that could take place next month, people with knowledge of the matter said.
Thursday, 21 November 2013 04:04 PM
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