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FIATY: Fiat Sends the Chrysler IPO Into Reverse

FIATY will buy out remaining 41.5% stake in $4.35 billion deal


Well, don’t expect a Chrysler IPO anytime soon.

The automaker’s majority owner, Fiat (FIATY), has agreed to shell out $4.35 billion between itself and Chrysler from the stake held by the United Auto Workers’ healthcare trust known as the Voluntary Employees Beneficiary Association, or VEBA.

But none of this should come as too much of a surprise. As I mentioned back in September, the IPO filing was., for the most part, a tactic to negotiate a deal between the parties.

So far, Fiat investors like the outcome, if the ADRs’ movement is any indication — FIATY stock is up roughly 15% on the news, putting its 52-week gains at around 55%.

The UAW originally got its 41.5% ownership position in Chrysler as part of the federal bailout of the company back in the grim days of the 2008-09 financial crisis — really the only way to salvage some value.

While the arrangement turned out to be a winner, the UAW needed to get fresh cash to start paying off obligations for its thousands of retirees as healthcare costs continue to rise.

But it still looks as if Fiat CEO Sergio Marchionne is a savvy negotiator. Wall Street widely expected that Fiat would have to agree to roughly $5 billion to gain full control of Chrysler.

Now, Fiat can complete a sorely needed full merger with Chrysler. FIATY’s European business remains a slog, but Chrysler has experienced a nice comeback while the U.S. economy has gotten itself back into gear.

Fiat still faces some tough challenges. For example, it will have to invest billions in Chrysler for new car models, as well as to meet the onerous requirements for fuel efficiency. At the same time, it is far from clear whether Fiat’s revamp of its Alfa Romeo will get traction.

Plus, the global competitive environment will remain intense — keep in mind that a combined Fiat-Chrysler will still only be ranked No. 7 in the world, behind mega-operators like General Motors (GM), Ford (F) and Toyota (TM).

Still, FIATY has made the right moves to reach more consistent profitability and run a sustainable business.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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