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Chrysler Is Going Public, Fiat Merger Could Be Just Around The Bend

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New York Stock Exchange (photo by Kjetil Ree)

New York Stock Exchange (photo by Kjetil Ree)

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The 2014 Jeep Cherokee may be nowhere in sight, but Chrysler's plan to become a publicly traded company is on full view. Yesterday, the automaker filed the paperwork for its initial public offering with the U.S. Securities and Exchange Commission.

As we reported last week, this isn't exactly how Fiat had hoped to complete its merger with Chrysler. The Italian company already owns 58.5 percent of Chrysler, and it had wanted to purchase the outstanding 41.5 percent that's currently held by VEBA, a healthcare trust associated with the United Autoworkers Union.

Unfortunately, the price Fiat offered VEBA for those shares was too low -- lower than VEBA could get on the open market anyway. And so, in an effort to keep the merger moving forward, Chrysler has filed for an IPO.

There are many, many ways this could play out for Fiat, Chrysler, and VEBA, but here are the most likely:

1) The IPO process continues until the point that the stock price for Chrysler shares is set. If that price falls somewhere between Fiat's initial offer to VEBA and VEBA's hoped-for sum, Fiat may make another offer to buy out VEBA. If VEBA agrees, that could delay or completely 86 the IPO, leaving Fiat in complete control of Chrysler.

2) The IPO process continues and one-quarter of VEBA's stock is sold on the open market. Fiat is able to purchase most or all of that stock, then it purchases the remaining 75 percent of VEBA's holdings directly from VEBA. (Remember: VEBA can only sell 25 percent of its Chrysler stock to the public. By law, the remaining 75 percent has to be sold to Fiat.) Chrysler would be a publicly traded company, but Fiat would own enough shares to merge with Chrysler.

3) The IPO process continues and one-quarter of VEBA's stock is sold on the open market. Fiat is unable to purchase ample quantities of Chrysler stock. According to the Wall Street Journal, Fiat has threatened to turn its back on Chrysler if that happens -- though what that might mean isn't clear. 

OUR TAKE

From where we sit, this looks like a big ol' game of corporate chicken, with Fiat and VEBA waiting to see who'll swerve first. We have a hunch that option #1 is the most likely scenario -- after all, Marchionne desperately needs Chrysler's cashflow to prop up Fiat while European auto sales recover. And besides, he and Fiat have invested years of time, energy, and financial resources in Chrysler. To think that he'd be willing to give all that up now seems unlikely. 

Bonus: Finance fans interested in Chrysler's IPO registration document can find it here

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