Fiat fails to get judge’s valuation of VEBA fund’s Chrysler stock Setback likely will delay merger

Fiat fails to get judge’s valuation of VEBA fund’s Chrysler stock
Setback likely will delay merger

Automotive News | July 30, 2013 – 6:33 pm EST

WILMINGTON, Del. (Bloomberg) — Fiat S.p.A. failed to persuade a judge to set the value of some Chrysler Group shares now owned by a union health-care fund, probably delaying a push to complete the combination of the two companies.

Delaware Chancery Court Judge Donald Parsons on Tuesday rejected Fiat’s request that he find a call-option agreement covering at least 54,000 Chrysler shares valued the stock at $139 million.

The decision clears the way for the case over the UAW retiree trust’s Chrysler holdings to go to trial. Parsons also ruled in Fiat’s favor on several issues affecting the value of the trust’s shares in the decision.

While the call-option agreement applies to more than 270,000 shares the trust received when Chrysler emerged from bankruptcy in 2009, the decision Tuesday pertains only to some of that stock.

The judge’s ruling may slow Fiat’s push to acquire the shares, along with the UAW’s entire Chrysler stake of 676,000 shares as part of a plan to transform the two regional carmakers into a global auto producer.

Fiat officials haven’t shown that the union trust “is required to deliver the shares in return for Fiat’s payment of $139.7 million,” Parsons said in his 448-page decision. “Thus, it would be premature for me to enter an order requiring” the fund to hand over the shares, the judge added.

Fiat is seeking as much as $10 billion in financing from a pool of banks in hopes of buying the UAW trust’s entire 41.5 percent Chrysler stake and refinancing the automakers’ debt, people familiar with the matter said in May.

Unification effort

The lenders include Bank of America Corp. and Goldman Sachs Group Inc., said the people, who sought anonymity because they weren’t authorized to speak publicly about the financing.

CEO Sergio Marchionne, who runs both Fiat and Chrysler, has spent the past four years working to unify the companies so they can better compete with Toyota Motor Corp., General Motors and Volkswagen AG.

A fully integrated company would offer the mass-market Fiat, Chrysler, Jeep and Dodge brands, along with the Maserati and Ferrari high-end lines.

As part of the unification effort, Marchionne is seeking to acquire the trust’s Chrysler holdings. Fiat now owns about 58.5 percent of Chrysler. Chairman John Elkann has said Marchionne put the effort to buy the union’s stake on hold while awaiting Parsons’s ruling.

Marchionne, on an April 29 conference call with analysts and reporters to discuss Chrysler’s first-quarter results, said once an agreement is reached with the UAW voluntary employee beneficiary association, or VEBA, on its interest, Fiat could close that transaction “in short order.”

‘Realistic price’

“The objective is, if one can be found, is to establish a realistic price for the stake and allow VEBA to monetize its interest in Chrysler and effectively for the creation of the single car company that I’ve made reference to now for a number of quarters,” Marchionne said. “I still think it’s the right answer.”

Fiat is “not close” to an agreement with VEBA and it “remains available” for talks, Marchionne said Tuesday on a call with analysts, adding that Chrysler is working on an initial public offering process as requested by the trust. “I have no positive news to tell you” on a Chrysler buyout, he said.

Only 40 percent of the UAW’s Chrysler holdings, which total more than 676,000 shares, were subject to the call-option agreement at issue in the Delaware Chancery Court case. The union, one of Chrysler’s largest creditors, got the shares as part of the resolution claims in the carmaker’s bankruptcy case.

Fiat bought a stake in Chrysler in June 2009 after the U.S. carmaker sought bankruptcy court protection from creditors and accepted more than $8 billion in financing help from the U.S. and Canadian governments.

Health-care fund

As part of Chrysler’s Chapter 11 reorganization, the union health-care fund wound up with a 41.5 percent stake in Chrysler as well as promissory notes in exchange for taking on retirees’ claims.

The UAW’s Retiree Medical Benefits Trust provides health-care services to more than 800,000 retirees and their dependents, according to the trust’s website. It’s the largest nongovernmental purchaser of retiree health services in the United States.

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