As widely expected, Chrysler has filed for an IPO.
JPMorgan (JPM) is the lead underwriter, and the company has yet to announce a ticker or exchange for the Chrysler IPO. But that might not matter anyway — there’s still a good chance this deal won’t even happen.
To understand why, you must go back to 2009 when Chrysler filed for bankruptcy. At the time, the company had to get a bailout loan from the federal government (which it eventually paid off) and merge with Fiat (FIATY). The United Auto Workers healthcare trust — called the Voluntary Employees Beneficiary Association — also took an equity stake.
And all this maneuvering actually turned out quite well. During the past four years, Chrysler has transformed its business by improving its product line, reducing costs, optimizing its dealer network and cutting back on promotions. The result: The company has launched 25 new vehicles and improved its US market share from 8.8% to 11.2%. Perhaps more impressively, Chrysler has posted 41 consecutive months of year-over-year sales gains.
But as of now, VEBA needs to get some liquidity to help pay for its bulging healthcare costs and wants to cash out a part of its 41.5% stake. The problem is that Fiat, which owns 58.5%, does not agree with the valuation of the shares — citing a difference of about $1 billion.
It’s true that an IPO will be a fair way to get a sense of the true market value. But that won’t be ideal for Fiat, which wants to own 100% of Chrysler. Full ownership would allow Fiat to completely integrate the two operations, get access to the $12 billion in the bank, and allow for a true global platform, which will be crucial to compete against biggies like GM (GM), Toyota (TM), Ford (F), Volkswagen (VLKAY), Honda Motor (HMC) and Hyundai.
In light of this, Fiat will probably will have to make a bid before a deal hits the market, and it probably won’t be cheap. After all, the auto stocks have been hot lately and so have IPOs. So Fiat may have to pay a hefty premium to win this one.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All 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.