Sergio Marchionne, CEO of Fiat and Chrysler, doesn't want two sets of shareholders, two sets of regulators and new shareholders second-guessing his judgment. But the UAW Retiree Medical Benefits Trust also took a chance on Chrysler's bankruptcy restructuring and subsequent turnaround. Now, it wants to convert its Chrysler shares to cash so it can pay the medical bills of about 60,000 retirees.
"It does sometimes help to have more than just one interested party take a look at the company's operations and strategy," said Mirko Mikelic, senior portfolio manager for Fifth Third Asset Management. "Whenever I am making an investment decision, I always like to hear that completely opposite view. It either helps me solidify my view, or pull back."
Fiat could increase its offer for the UAW trust's 41.5% stake. That would enable it to draw on Chrysler's cash to fund its turnaround in Europe after the partners renegotiate current loans.
"There is no way Marchionne wants to deal with public investors, especially if a bunch of activist investors get involved," said Ken Elias, a partner with Maryann Keller & Associates in Greenwich, Conn. "They'll question everything."
Chrysler executives often say that the teamwork and respect that has characterized Fiat's stewardship of its partner is dramatically better than the disdain that characterized the Daimler ownership from 1998 to 2007.
Marchionne repeatedly has said his goal is to forge a global automaker that can sell at least 6 million vehicles annually and compete in all major markets. Now he's sending mixed signals.
Chrysler's registration statement, filed Sept. 23, warned that Fiat might back away from the Chrysler alliance if the th! e public offering goes through.
Fiat and the UAW trust have been embroiled in a bitter dispute since last summer over the value of the shares Fiat wants to buy.
The two sides are said to be more than $1 billion apart, with the UAW trust asking for $5 billion. If there is an initial public offering, it probably won't occur early next year. If the two sides reach an agreement, it wouldn't happen at all.
In Europe, Fiat is restructuring and developing new cars, especially for its upscale Alfa Romeo and Maserati brands, that can sell in larger quantities outside Italy.
Given its current problems, cutting ties with Chrysler doesn't seem likely or logical. So far this year, Fiat would have lost $654 million, or 482 million euro, without Chrysler.
"No one has asked the question whether Chrysler might be better off without Fiat," Elias said. "Fiat is too small in Europe and has limited exposure globally — except in Brazil — has high costs and an unclear future. The ingredients missing at Chrysler are really just small and midsize cars and small engines … and no real hybrid or BEV (battery electric vehicle) strategy."
The two partners need each other.
The Dodge Dart compact car launched last year was built on a modified Alfa Romeo platform. The diesel engine in the Grand Cherokee that went on sale earlier this year comes from Fiat-owned VM Motori. The 2014 Jeep Cherokee that goes on sale this month also is built on a modified Alfa Romeo base.
A full merger would give Fiat access to Chrysler's cash to fund future Fiat vehicles if it renegotiates its loan agreements with lenders. But Marchionne has pledged that Fiat never would hurt Chrysler solely for Fiat's benefit.
"The common humanity that binds our two organizations together is the irrefutable industrial logic behind the alliance and the shared values that define our organizational culture," Marchionne said when he spoke earlier this year in Detroit.
Given the way Daimler walked away from C! hrysler, ! reneging on that "irrefutable logic" would not inspire trust among experienced Chrysler workers who have painful memories of life under a European automaker.
In 2009, Fiat paid no cash for 20% of Chrysler, promising to provide management and key technology. Since then, Fiat has paid $2 billion to acquire additional Chrysler shares and repaid loans from the U.S. and Canadian governments.
Mikelic doubts Marchionne is serious about his threat for Fiat to back out of the alliance in light of his repeated goal of building the partners into a global automaker.
Is he willing to deal with a band of outside investors, or will he pay a higher price for total ownership?
"Sometimes you don't like to hear it. But outside investors can offer good advice at times," Mikelic said.
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