Fiat Will Gain Upper Hand if Chrysler’s Value Stands at $10B

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Fiat SpA is set to gain the upper hand in negotiations to buy a health-care trust’s holding in Chrysler Group if the final value for the American carmaker remains around $10 billion, the level currently being discussed.

Bank advisers are considering a valuation of about $10 billion for Chrysler, said inside sources that asked to remain unnamed. That would make the 41.5 percent of Chrysler owned by the United Auto Workers trust worth $4.15 billion, less than what analysts have expected Fiat to pay.

The trust and Fiat — Chrysler’s majority shareholder — are disputing the company’s value as Sergio Marchionne, CEO of both automakers, seeks to buy the UAW’s stake. The trust is working to determine whether to sell its holding to Fiat directly or press forward with an IPO as soon as next month, the sources said.

“It’s going in Marchionne’s direction,” says Sascha Gommel, a Frankfurt-based analyst at Commerzbank in Germany. “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.”

Fiat gained as much as $0.19, or 2.3 percent, to $8.12 and was up 0.7 percent in Milan trading today. The stock has climbed 56 percent this year, valuing the Italian automaker at $10 billion.

Investment banks working on the IPO have considered a range from $9 billion to $16 billion, said one of the sources. The advisers are currently focusing on a range of about $10 billion to $11 billion for the IPO, said another source. Talks are fluid and the final number could change.

Marchionne has offered the trust at least $1 billion less than what the labor group is asking, and said the UAW “should buy a ticket for the lottery” if it wants $5 billion or more.

“Fiat may offer a premium over the IPO price and still close the deal at a lower price than expected,” says Emanuele Vizzini, CIO at Investitori Sgr in Milan, who manages $2.5 billion. “It could also help Fiat to buy the holding without a capital increase.”

The IPO process could give the sides a new basis for negotiation, and Fiat is ready to begin talks with the UAW as soon as the price range is public, two people said. Chrysler may begin formal meetings with potential IPO investors the first week of December, and would outline the valuation in a regulatory filing before that, said the people.

“One of the things I hope is that it will become very clear exactly what the markets think Chrysler is worth, which is the only real reference point,” Marchionne told reporters last month. “There’s a pretty clear process that leads to the IPO, and it places clear road markers that can be recognized by both sides.”

Marchionne has been trying for four years to combine the companies and forge an automaker better able to compete with larger rivals. Chrysler, based in Auburn Hills, has reported 43 straight monthly U.S. sales gains and two consecutive annual profits, buoyed by a recovery in U.S. car sales to pre-recession levels.

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