MILAN Chrysler Group LLC's minority owner is expected to lay out its argument on Monday in a legal dispute over the price Italian carmaker Fiat will pay for the first of several incremental stakes in the U.S. carmaker.
The increases could raise Fiat's stake from 58.5 percent to as much as 75 percent, advancing Fiat's ambition of eventually merging the two companies.
Fiat wants to pay $139.7 million (109 million euros) for 3.3 percent of Chrysler, a figure reached by using a formula set up when Fiat took control of Chrysler as it emerged from bankruptcy in 2009. But other Chrysler shareholders have objected to the price and the dispute has ended up in court.
While Fiat already has management control of Chrysler, owning the entire company would allow it to restructure debt and ensure that Chrysler generates enough cash to support Fiat's loss-making European operations, analysts said.
Investors will watch the filing on Monday in a Delaware court to see how the minority owner, a healthcare trust affiliated with the United Auto Workers union, values the stake it is selling. The healthcare trust is a voluntary employees beneficiary association (VEBA).
Investors will also be looking for any counterclaims from the VEBA that raise questions about the legitimacy of the 2009 contract with Fiat that governs the VEBA's sale of the stake.
"We believe it is in both sides' interests to find a way forward, and we believe it is inevitable that Fiat will eventually fully consolidate Chrysler and move to restructure debt and pool cash," Bernstein Research analyst Max Warburton wrote in an October 10 report.
The VEBA involved is for retired Chrysler union workers. Separate trusts cover healthcare costs for retirees at General Motors Co and Ford Motor Co.
The VEBA took a stake in Chrysler as part of the company's 2009 bankruptcy restructuring.
Fiat was the stronger of the two automakers in 2009 but those positions have been reversed, due largely to the economic crisis in Europe. Last month, Fiat Group Automobiles reported a third-quarter trading profit of 128 million euros ($164 million) while Chrysler reported a trading profit of $706 million (551 million euros).
"When we signed the damn thing in 2009 it was clear," Fiat and Chrysler Chief Executive Sergio Marchionne told reporters on October 8 in Columbus, Ohio. "Today, now that things have changed and we're making some money" at Chrysler, VEBA and Fiat disagree on how the six-month tranches should be priced, he said.
After Monday's deadline, Delaware Court of Chancery judge Donald Parsons is likely to schedule a case management hearing to decide how to proceed.
The parties agreed to have the dispute heard in the non-jury Court of Chancery, popular for its speed and business expertise. Judges have a wide array of options at their disposal to achieve fairness. They can impose penalties, postpone deadlines, order payments.
"We hope the legal proceedings will conclude by the end of the year," Fiat Chief Financial Officer Robert Palmer said on a conference call on October 30.
The trust is looking to maximize the value of its Chrysler stake to cover escalating healthcare costs for the U.S. automaker's retirees. VEBA officials have declined to comment on the matter.
As part of the 2009 agreement, Fiat is able to exercise call options to purchase portions of the stake held by the healthcare trust starting in July 2012.
Fiat can buy up to 3.3 percent of Chrysler every six months through the first half of 2016, or until it reaches the 16.58 percent cap for this type of share purchase. CEO Marchionne said he would continue to incrementally increase ownership in Chrysler every six months. He said last month that he wanted to merge Fiat and Chrysler by 2015.
"The objective has always been to try and bring unification by 2014 or 2015," Marchionne said on October 30. "I'd still like to see that done."
(Additional reporting by Bernie Woodall and Deepa Seetharaman in Detroit, Tom Hals in Delaware; Editing by Nick Zieminski)