Fiat SpA Chief Executive Officer Sergio Marchionne hired Ron Bloom, who helped run President Barack Obama’s auto-industry team, to advise the carmaker on buying the rest of Chrysler Group LLC, people familiar with the matter said.
Bloom, now a Lazard Ltd. (LAZ:US) vice chairman, will assist the Fiat CEO in trying to strike a deal with the United Auto Workers’ retiree health-care trust, the only other shareholder in Chrysler, said the people, who asked not to be identified because the matter is private. Marchionne needs an agreement to complete his takeover of the U.S. auto manufacturer.
At the same time that he seeks concessions on behalf of the Fiat boss, Bloom is advising Detroit retirees fighting benefit cuts in the city’s $18 billion bankruptcy.
The unrelated roles mean Bloom, 58, will be defending worker benefits in Detroit while trying to trim them at Chrysler. He’s had experience in both arenas. The Lazard banker with a Harvard Business School degree worked with corporate clients on hundreds of bankruptcies and also spent 13 years advising the United Steelworkers union president.
Judi Mackey, a Lazard spokesman, confirmed the Detroit role. She declined to comment on the Fiat (F) position.
Bloom’s new mandates reflect his longstanding ties to the auto industry and place him on opposite sides of the table from officials he worked with in an earlier era.
The Detroit bankruptcy role pits Bloom against Detroit Emergency Manager Kevyn Orr, one of the lawyers for Chrysler and Marchionne when Bloom helped lead the $80 billion bailout that saved General Motors Co. and Chrysler in 2009. Andrew Yearley, who negotiated opposite Bloom for the UAW during the Chrysler bankruptcy, now will be his partner in Detroit.
Bloom and Yearley will provide financial advice to the committee representing Detroit retirees in the bankruptcy case.
At Fiat, Marchionne, 61, has spent the past four years seeking to unify the companies so they can better compete with Toyota Motor Corp. (7203), GM and Volkswagen AG. (VOW) A fully integrated automaker would feature the mass-market Fiat, Chrysler, Jeep and Dodge brands, along with high-end Maserati and Ferrari cars.
Marchionne first must reach a deal that resolves a valuation dispute with the trust, known as a voluntary employee beneficiary association. The U.S. carmaker may file initial public offering documents this week with the U.S. Securities and Exchange Commission to list a 16.6 percent stake. The trust, which owns 41.5 percent of Chrysler, has the legal right to initiate the sale under the terms of its holding.
Bloom worked closely with Marchionne in 2009 when the Fiat CEO negotiated with the U.S. Treasury to acquire a controlling stake in Auburn Hills, Michigan-based Chrysler. A representative at Turin, Italy-based Fiat declined to comment.
Bloom has been working with Marchionne for months and is helping him understand the priorities of the UAW and the health-care trust, one of the people said. Because of his longstanding ties to labor, Bloom has also served as a backdoor channel to the UAW, the person said.
Fiat currently owns 58.5 percent of Chrysler. It started accumulating the stock in 2009, building on an initial 20 percent holding received as part of a government-backed bailout of the U.S. carmaker, which was losing as much as $100 million a day at the time. The trust received its stake as part of the rescue package.
Marchionne’s ultimate goal is to use the IPO process to set a market value for the trust’s holding and force the labor group back to the bargaining table, people familiar with the matter said earlier this month. The trust has been holding out on selling its Chrysler stake, seeking at least $1 billion more than Fiat wants to pay. The two sides are in court over the value of the initial shares that Fiat has options to buy.
JPMorgan Chase & Co. will be the lead underwriter of the offering, said a person with knowledge of the plan. The person asked not to be identified because the preparations are private.
Tasha Pelio, a spokeswoman for JPMorgan, declined to comment.
Buying the trust’s 41.5 percent stake will help Marchionne access Chrysler’s $11.9 billion in cash to fund a turnaround in Europe, where Fiat is losing money and market share. Fitch Ratings this week confirmed its negative outlook on Fiat.
In Detroit, Bloom will need to argue against trimming benefits. The pensioners have said the Michigan Constitution protects the unfunded benefits from proposed cuts of as much as 90 percent in the $18 billion bankruptcy. Orr and his boss, Michigan Governor Rick Snyder, have countered that under U.S. bankruptcy law the police, fire and city retirees are unsecured creditors, like bondholders, and aren’t exempt from potential cuts.
Bill Nowling, a spokesman for Orr, didn’t immediately respond to an e-mail seeking comment.
Bloom rejoined Lazard in February 2012 after resigning in August 2011 from a White House post advising Obama on manufacturing policy. Orr, 55, who worked on the Chrysler restructuring, left the law firm Jones Day in March to take the job overseeing Snyder’s takeover of Detroit.
The industry bailout that Bloom helped lead and Orr advised on has produced a U.S. auto industry with sales on track for a fourth straight year of annual increases. Chrysler has reported 41 straight months of gains, and GM (GM:US) has said it expects a modest improvement over its $6.19 billion in earnings (GM:US) in 2012 as it heads for its fourth consecutive annual profit. Next year, U.S. auto sales are projected to exceed 16 million for the first time since 2007.
Bloom became Obama’s top manufacturing adviser after the auto bailouts. Before joining the bailout team in 2009, Bloom was an adviser to the United Steelworkers union and a manufacturing specialist at Hamilton, Bermuda-based Lazard.
During the auto bailouts, Bloom argued that pensions for UAW members deserved protection even as bondholders and banks faced cuts because the workers were necessary to build cars and trucks once the companies exited court protection. A bankruptcy judge supported that position.
Detroit’s retired public workers will be represented by nine people, including at least two union officials, on a panel that may negotiate with the city, a U.S. trustee monitoring the bankruptcy decided last month.
Orr said in a July interview that a retiree committee is needed because, unlike union members or bond investors, the pensioners don’t have a strong organization backing them.
Detroit retirees joined with unions earlier this month in claiming the bankruptcy law that lets municipalities seek court protection from creditors violates the U.S. Constitution.
The groups, which want the bankruptcy case thrown out in a hearing next month, also point to a line in the Michigan Constitution that says public-worker pensions are a contractual right that cannot be undone.
The retirees argue that Chapter 9 of the U.S. Bankruptcy Code can’t trump a state constitution. The groups asked U.S. Bankruptcy Judge Steven Rhodes to find either that the bankruptcy filing doesn’t meet the tests set out in Chapter 9 or that Chapter 9 itself violates the U.S. Constitution because it interferes with Michigan’s sovereignty.
In business cases, where Orr has more experience, federal courts have routinely upheld the power of bankruptcy judges to impair or cancel contractual rights, even those protected by state laws.
Before joining Jones Day, Orr held several U.S. government jobs, including director of the Justice Department unit that oversees bankruptcy cases and trustees, according to the law firm.
As an adviser to the United Steelworkers for 13 years, and before that as a manufacturing specialist at Lazard and his own boutique investment firm, Bloom participated in more than 100 bankruptcies and restructurings, trying to balance the realities of business with the need for jobs, he said in a 2010 interview.
Marchionne praised Bloom in a 2011 interview for working around the clock to complete the deal on Chrysler in 2009, saying he once had a conversation with the banker on the steps of the U.S. Treasury building during a cigarette break.
“I asked him: What the hell are you doing here?” Marchionne said at the time. Bloom “turned around and he said, ‘when I die, I want to be able to put on the tombstone: he made the difference.’”
The Detroit case is City of Detroit, 13-bk-53846, U.S. Bankruptcy Court, Eastern District of Michigan (Detroit).
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