UPDATE 1-Chrysler minority owner pushes first step toward IPO

Wed Jan 9, 2013 8:08pm EST

* Fiat, VEBA at odds over Chrysler value

* Analysts say VEBA move will not lead to IPO

* Marchionne wants Fiat-Chrysler merger by 2015

By Bernie Woodall and Jennifer Clark

DETROIT, Jan 9 (Reuters) - The minority owner of Chrysler Group LLC on Wednesday pushed the U.S. automaker to take the first step toward becoming a public company again by demanding that Chrysler register shares with U.S. regulators.

The minority owner, a United Auto Workers union retiree healthcare trust, on Wednesday demanded that Chrysler register 16.6 percent of company shares with the U.S. Securities and Exchange Commission. The trust has the right to make the demand because of the 2009 agreement that brought Chrysler out of bankruptcy and left Fiat SpA as part-owner.

But analysts say that there will not be an initial public offering. They say that the healthcare trust is forcing Fiat's hand in valuing Chrysler shares now being contested in a Delaware court.

The bankruptcy agreement allows Fiat to buy as much as 3.3 percent of Chrysler every six months, until it reaches a maximum of 16.6 percent of Chrysler purchased in this fashion.

Sergio Marchionne, chief executive of both Fiat and Chrysler, has said he wants to merge the two companies by 2015.

The fact that the healthcare trust, a voluntary employee beneficiary association (VEBA), wants Chrysler to register the same amount of shares that would be affected by the court's ruling on their valuation is no coincidence, analysts said.

"The IPO ain't gonna happen," said Richard Hilgert, an analyst at Morningstar. "VEBA wants to get a pricing on the 16.6 percent so that they can take it to court and say 'this is the market price.'"

The Italian automaker now owns 58.5 percent of Chrysler and the VEBA owns 41.5 percent.

The notional value of Chrysler shares has risen sharply since it was a company standing on shaky ground in 2009 to one that is the profit center for Fiat, which is struggling due to a weak European auto market.

Based on filings with the court, Fiat values all of Chrysler at $4.2 billion, and the VEBA values it at $10.3 billion. Hilgert valued Chrysler's equity at $13.6 billion in a report published by Morningstar in May. He thinks Fiat stock is undervalued.

In November, a UBS report valued Chrysler at $9 billion.

London-based UBS analyst Philippe Houchois also said there would not be an IPO and that the move by the VEBA is a ploy in the separate battle over the value of Chrysler shares.

"Fiat is trying to buy Chrysler on the cheap," said Houchois.

He said the only pressure VEBA can put on Fiat is to list the shares in an IPO to get a higher price. It is a recognition that VEBA's case is weak. Houchois said he doesn't think there will be an IPO.

Fiat contends in court filings that it has set the valuation of Chrysler in tune with a formula established in the agreement when the U.S. automaker exited its government-sponsored bankruptcy.

"When we signed the damn thing in 2009 it was clear," Marchionne said in October, referring to the pricing formula for the value of Chrysler shares. "Today, now that things have changed and we're making some money" VEBA wants not to adhere to the formula, he said.

Brock Fiduciary, which manages the VEBA's investment in Chrysler, said on Wednesday through a VEBA spokeswoman that it would not be making a statement. The VEBA deferred any comment to Brock.

While VEBA owns 41.5 percent of Chrysler, it can only sell up to 24.9 percent of the company in the equity markets, because Chrysler has the right to call for up to 16.6 percent through its periodic purchases.

FIAT CALL OPTIONS

Last July, Fiat filed for the first 3.3 percent tranche of VEBA-owned Chrysler shares. The VEBA balked at the price Fiat offered, $139.7 million, saying it was too low. Fiat in September filed suit against the VEBA to force the healthcare trust to sell the shares.

The issue is now being considered by a Delaware court. VEBA told the court that it values the 3.3 percent stake in Chrysler at $342 million.

Last week, Fiat filed to buy another 3.3 percent tranche of Chrysler from the VEBA.

Registration of the Chrysler shares by the SEC could take eight months or longer, said Chrysler spokeswoman Shawn Morgan.

The VEBA may withdraw from the registration process at any time, she said.

Chrysler has not been a publicly traded company since it was a unit of Daimler AG. Daimler sold most of Chrysler to private equity firm Cerberus Capital Management in 2007.

The last time a company called Chrysler was publicly traded was in 1998, before its merger with Daimler.

The VEBA was granted its shares in Chrysler as part of the bankruptcy agreement in 2009 because the company could not fund the healthcare of its retired workers.