U.S. Markets closed

Fiat's Chrysler Files for IPO

Zacks Equity Research

Chrysler Group LLC, the partly-owned subsidiary of Fiat S.p.A. (FIATY), has filed a registration statement with the U.S. Securities and Exchange Commission (:SEC) for a public offer of its shares. The decision comes under pressure from the minority owner UAW Retiree Medical Benefits Trust (VEBA Trust), which owns 41.5% of Chrysler.

Fiat, which holds a 58.5% stake in Chrysler, has been trying to acquire the remaining shares from the VEBA Trust. However, the two owners have not been able to settle on a purchase price.

This conflict resulted in the trust’s demand for an IPO expecting a better price for its stake. J.P. Morgan Securities LLC of JPMorgan Chase & Co. (JPM) will manage the IPO.

However, the issue price and the number of shares to be offered have not been decided yet, although the IPO is expected to be valued at around $100 million. Only the stake of VEBA Trust will be sold, while Fiat will retain its holding.

According to media reports, Fiat is not pleased with the IPO decision and is reconsidering extending its alliance with Chrysler. If the company decides to forego an extension, it will hurt the profitability and financial position of Chrysler.

Management of Chrysler expects the IPO to take place in the first quarter of 2014, although it does not rule out the possibility of it taking place at the end of this year. However, the filing of Form S-1 by Chrysler need not translate in an IPO if Fiat and the VEBA Trust agree on a purchase price and go ahead with a private transaction.

Chrysler used to trade on the New York Stock Exchange (:NYSE) until Nov 1988. Thereafter, it was acquired by Daimler AG (DDAIF) and later, Cerberus Capital Management purchased an 80% stake in the company. Fiat then acquired Chrysler in 2009 when the latter became bankrupt.

Since then, the parent company has managed to turn the subsidiary profitable. Chrysler has recorded eight consecutive quarters of earnings growth.

Fiat currently carries a Zacks Rank #3 (Hold). Another automobile stock worth considering at present is Fuji Heavy Industries Ltd. (FUJHY), which carries a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on FIATYRead the Full Research Report on FUJHYRead the Full Research Report on JPMRead the Full Research Report on DDAIFZacks Investment Research