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Does Fiat-Chrysler Shenanigans Threaten Alliance’s Future?

Stakes Too High To Let This Spat Derail Progress To Full Merger.

The Fiat-Chrysler saga is becoming more surreal, as the UAW organizes a share offering Fiat hopes will bomb, and force the union to sell its stake to them for less money.

But don’t expect this to stand in the way of an eventual full merger.

Fiat owns 58.5 per cent of Chrysler and wants the UAW Retiree Medical Benefits Trust’s 41.5 per cent stake. Only then can Fiat access all of Chrysler’s cash flow, and even that is disputed by some.

Fiat took an initial stake in Chrysler when the U.S. company was bankrupt, for free, built this up by fulfilling terms of an agreement with the U.S. government, then bought small stakes regularly, bringing it to 58.5 per cent.

According to the Wall Street Journal columnist Holman W Jenkins Jr, the two sides are $2 billion apart on price – the UAW is said to want $4.27 billion for its stake. The share sale though is expected to be for only 16.6 per cent of Chrysler. No date for the sale has been announced

The theory is that when the UAW sees how hopelessly unrealistic its price is when the shares are open to bidders in the market, the union will quickly agree to a price acceptable to Fiat, smiles will return and sunlit uplands will beckon.

Jenkins has some controversial views about the deal between Fiat and Chrysler.

Aiding Obama’s green car dreams
“And Chrysler needs Fiat why? Mainly because Fiat has the small-car technology and models that Americans don’t want to buy but that President Obama’s fuel-economy rules require a future Chrysler to sell,” Jenkins said.

“In essence, Fiat received its original stake as a gift too – for promising to aid President Obama’s green car dreams. And this stinker of a bargain is still the main thing holding profitable Chrysler to Fiat,” Jenkins said

“The deal is a stinker for second reason. Suppose gasoline goes to $6 and the public is willing to pay a healthy price for Chrysler-built small cars. As a profitable company with strong brands thanks to the bankruptcy, Chrysler would likely be able to find in the capital markets money to buy or build such technology on better terms than it got from Fiat-Obama in the midst of a financial crisis,” according to Jenkins.

Could these shenanigans derail Fiat’s quest to control all of Chrysler? Given that without Chrysler’s profits, loss-making Fiat would be in dire straits, expect an agreement before too long. Analysts don’t expect Fiat threats to back away from the alliance to materialize, because CEO Sergio Marchionne has been such an ardent supporter of the need for scale to compete in world markets against the likes of Toyota, VW, and GM.

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