Italian automaker Fiat is considering a plan to hold a public stock offering after the company buys 100 per cent of Chrysler, according to a person briefed on the matter.
The plan to sell shares of a combined company is among several options being evaluated by Sergio Marchionne, who serves as CEO of both automakers, said the person, who requested anonymity because no decision has been made.
A stock offering would raise much-needed money for research on new vehicles at both companies, and could help Fiat weather the economic downturn in Europe.
Fiat now owns 58.5 per cent of Chrysler, and wants to buy the remaining 41.5 per cent from a health care trust fund for union retirees. The two sides differ on price, and that may be decided by a U.S. court.
Fiat and Marchionne were appointed to manage Chrysler in 2009 by the U.S. government, which had bailed out the struggling company and funded its trip through bankruptcy restructuring. Since then, Fiat has raised its stake in a resurgent Chrysler, and Marchionne wants to merge the companies to generate more cost savings from joint research, management and purchasing.
Fiat SpA shares are now traded publicly on the Milan stock exchange, while Chrysler is technically a private company with no publicly traded shares. Presumably, Fiat shareholders would be offered a stake in the new company if they approve the merger.
No decision has been made on where to list shares of the new company, the person said. But Marchionne has repeatedly told reporters that U.S. stock markets are more profitable than those in Italy.
Merging the companies would give Fiat access to Chrysler's cash holdings. Currently, Fiat shares in Chrysler's profits but can't use the Detroit automaker's funds for its own operations. Without Chrysler, Fiat would have lost $1.41 billion last year. Chrysler had $11.6 billion in cash at the end of 2012. Both Chrysler and Fiat are scheduled to report first-quarter earnings on Monday.
Marchionne has said Fiat has 10 billion euros ($13 billion) in cash that can be used to cope with a severe slowdown in European auto sales and buy the trust fund's stake in Chrysler.
Like Fiat, the trust got its stake in Chrysler from the government. At the time that Chrysler filed for Chapter 11, it owed the trust around $4 billion as part of a deal with the United Auto Workers to take over retiree health care costs.
The trust fund needs cash to pay medical bills for thousands of Chrysler blue-collar retirees. In order to monetize its stake in Chrysler, it either has to sell the shares to another party, such as Fiat, or sell shares of Chrysler to the public — which could happen if Fiat and the trust can't agree on a share price.
The trust has asked Fiat to begin working on an IPO of Chrysler, but cannot formally compel it to follow through; a public offering takes about 18 months to prepare. Marchionne has said he favours buying the trust's stake to selling separate shares of Chrysler to the public.
A merger between Fiat Industrial and CNH, or Case New Holland, a U.S. farm equipment maker, could be an indication of how Fiat and Chrysler might merge. Fiat Industrial and CNH are to merge into a new company later this year. The new entity has yet to be named, but it will be based in the Netherlands with its main stock listing in New York and a secondary one in Europe.
Marchionne has already taken steps to combine Fiat and Chrysler. The companies are sharing engines and parts and have jointly designed cars like the Dodge Dart compact. The balance sheets are already combined, although there is a strict separation of assets.