Fiat SpA (F) Chief Executive Officer Sergio Marchionne restarted negotiations with a United Auto Workers medical trust to buy the remaining shares of Chrysler (CGC:US) Group LLC, three people familiar with the matter said.
With an initial public offering of Chrysler on hold, Fiat executives met this week with representatives of the retiree health-care trust, said two of the people, who asked not to be identified because the talks are private.
The meeting followed the trust’s rejection of a higher offer for its 41.5 percent stake in Chrysler earlier this month, the people said. The proposal was the first made by Fiat since August, one person said.
“Marchionne needs a deal to avoid an IPO as that may lead to Fiat paying top dollar for Chrysler,” said Vincenzo Longo, analyst at IG in Milan. “Investors would appreciate a compromise between the trust’s demands and Fiat’s offer.”
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A long-running dispute over the value of the holding prompted the union trust to force Auburn Hills, Michigan-based Chrysler to pursue an IPO. The stock-sale process is meant to set a market value for the third-largest U.S. automaker. That process has stalled over tax reasons, pushing a potential listing into 2014.
Fiat shares rose 1.5 percent yesterday to 5.60 euros in Milan trading, making it the second-best performer on the Euro Stoxx autos and parts index. The stock has climbed 48 percent this year through yesterday, valuing the company at 7 billion euros ($9.6 billion).
IPO advisers were considering a valuation of about $10 billion for Chrysler, people familiar with the matter said in November. Based on those calculations, Turin-based Fiat is now seeking to pay about $4.2 billion for the holding, compared with the trust’s demands for at least $5 billion, one of the people said. That’s narrower than the previous gap between the two sides of more than $1 billion.
Representatives for Fiat and Chrysler declined to comment on the status of the talks.
Marchionne, who also runs the U.S. manufacturer, is seeking to merge the two carmakers next year to better compete with larger rivals such as General Motors Co. (GM:US) and Volkswagen AG. Fiat also needs access to Chrysler’s cash to help fund a turnaround in Europe, where the Italian carmaker is losing money and market share because of a lack of new models.
Chrysler returned to profit after Fiat rescued it from bankruptcy in 2009. The Turin-based company holds 58.5 percent of the American carmaker.
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The trust is holding out for more money with valuations for Chrysler running as high as $19 billion, one of the people said. That would value the holding at $7.9 billion. Under contracts between the parties, Fiat has the right to buy the stake for about $6 billion, limiting its risk if talks drag on.
The trust needs to maximize what it gets for the stake to pay for retirees’ medical care. It estimated in an October filing that those costs will be $3.1 billion more than its assets are worth. Marchionne is eager to avoid overpaying so the carmakers have as much money as possible to invest in new vehicles.
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