Chrysler valuation may prove a boon for main shareholder Fiat

Industry analysts are tentatively valuing car maker Chrysler at $10 billion (€7.3bn), a price tag that could prove a boost to the plans of its majority shareholder, Fiat. Chrysler is currently heading towards a stock market floatation, triggered by its other major shareholder, the United Auto Workers’ Fund. The Fund, which represents the healthcare and pension interests of US car factory workers, was given a major stake in Chrysler when it was bailed out by the US Government in 2010. It is currently at loggerheads with Fiat over how much its share is worth.

The stock market float had been planned to force Fiat to offer a higher price for the UAW’s stake. The current suspected valuation of $10bn would be a boon to Fiat, though, pricing the UAW’s stake at between $4bn and $5bn, a much lower price than had been envisaged.

All of this has come about because Fiat boss Sergio Marchionne wants to fully integrate both Fiat and Chrysler into one global empire. At the moment, because of a strict rule drawn up when Fiat began to buy into Chrysler following its bankruptcy and bailout, Fiat cannot access Chrysler’s stockpile of cash and assets to fund new model development, nor can it fully integrate the global operations of both the Italian and American companies.

“It’s going in Marchionne’s direction,” Sascha Gommel, a Frankfurt-based analyst at Commerzbank, told Bloomberg News. “It’s in the interest of both parties to avoid an IPO. In the end, the most likely scenario is that Fiat takes the remaining stake.”

The lower-than-expected valuation will certainly be a disappointment to the UAW and may well bring about an out-of-court, or at least out-of-stock-exchange solution to the current Mexican standoff. Marchionne has reportedly told the UAW that if it wants more than $5bn for its Chrysler stake, it should “buy a lottery ticket”.

A full Fiat-Chrysler integration could give Marchionne the war-chest he needs to fund a regeneration of both Fiat and Alfa Romeo, which are both seriously hurting from continuing falls in European sales. Chrysler, by contrast, has been posting sales growth and profits in the US for the past 43 months.