Bloomberg News

Fiat Trial Over UAW’s Chrysler Shares Set for September

October 16, 2013

Fiat SpA (F) must wait almost a year for a trial over the value of some Chrysler Group LLC shares after a judge set a September 2014 date to hear evidence, further delaying Fiat’s push to combine the two companies.

Delaware Chancery Court Judge Donald Parsons scheduled a five-day, non-jury trial to start Sept. 29 for testimony and arguments about valuing the shares, which are owned by a United Auto Workers trust fund.

Lawyers for the UAW’s Retiree Medical Benefits Trust had requested a January 2015 trial on dueling interpretations of an agreement covering some Chrysler shares. Fiat sought a May 2014 trial in hopes of speeding up Chief Executive Officer Sergio Marchionne’s effort to use the case to set the value of the union’s 41.5 percent Chrysler stake.

The union trust estimated the value of its stake in the automaker at $4.2 billion in the Delaware case as Marchionne valued the stake at $1.7 billion. Those calculations were based on the price for the first set of Chrysler shares available for purchase by the Italian carmaker last year under the 2009 agreement and not market value.

Fiat officials declined to comment on the 2014 trial date. Matt Wood, a spokesman for the union trust, didn’t immediately return a call yesterday seeking comment on it. Richard Hilgert, an analyst with Morningstar Inc. (MORN:US) in Chicago, said the case will most likely be resolved before the trial date.

Seeking ‘Leverage’

“It makes more sense that these parties come together in a deal that has Fiat as 100 percent owner of Chrysler,” he said. “In the meantime, both sides will engage in brinkmanship to maneuver for leverage in the negotiation process.”

Parsons refused in July to honor Fiat’s request to set a value on the shares without a trial. The judge also ruled in Fiat’s favor on several claims affecting the value of the trust’s shares. Fiat, based in Turin, Italy, bought a stake in Chrysler in June 2009 after the Auburn Hills, Michigan-based carmaker sought bankruptcy-court protection from creditors.

The trial will focus on the agreement’s formulas for valuing the first segment of more than 270,000 shares the trust received when Chrysler emerged from bankruptcy in 2009.

Marchionne, who runs both Fiat and Chrysler, has spent the past four years seeking to unify the companies so they can better compete with Toyota Motor Corp. (7203), General Motors Co. (GM:US) and Volkswagen AG. (VOW) A fully integrated automaker would feature the mass-market Fiat, Chrysler, Jeep and Dodge brands, along with the high-end Maserati and Ferrari lines.

UAW Portfolio

Fiat wants to acquire the UAW’s entire Chrysler portfolio of 676,000 shares as part of its unification effort.

The union provides health-care services to more than 800,000 retirees and their dependents, according to the trust’s website. It’s the largest nongovernmental buyer of retiree health services in the U.S.

Chrysler’s value has climbed to $13.5 billion, UBS AG estimates, as industrywide U.S. light-vehicle sales this year are on track to reach the best level since 2007. The UBS estimate would mean the union’s total Chrysler stake is worth $5.6 billion.

At trial, Parsons will hear evidence on the call-option agreement’s formulas for valuing the trust’s shares to help set an acquisition price.

The formulas are based partly on Chrysler’s reported earnings before interest, taxes, depreciation and amortization for the four most recent financial quarters, minus the carmaker’s “net industrial debt” as listed in its most recent financial statements, according to court filings.

The case is Fiat North America LLC v. UAW Retiree Medical Benefits Trust, 7903, Delaware Chancery Court (Wilmington).

To contact the reporters on this story: Jef Feeley in Wilmington, Delaware at jfeeley@bloomberg.net; Mark Clothier in Southfield, Michigan at mclothier@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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