VEBA prices its 3.3% stake in Chrysler at $342 million

Article by Anita Panait, on November 14, 2012

The Voluntary Employees Beneficiary Association (VEBA) wants Fiat to pay at least $342 million for the healthcare trust’s 3.3 percent stake in Chrysler Group LLC that the Italian carmaker wants to acquire. According to documents filed by VEBA in Delaware's Court of Chancery, the healthcare trust said that Fiat's offer of $139.7 million for the Chrysler stake was substantially below the fair market value.

Fiat, which holds a majority ownership in Chrysler, sued VEBA in September for its failure to sell the stake. As part of the 2009 agreement with the U.S. Treasury as Chrysler emerged from bankruptcy, Fiat could exercise call options to acquire portions of the stake held by VEBA, the healthcare trust for retired Chrysler workers member of the United Auto Workers union.

The increases could substantially increase Fiat’s stake in Chrysler from 58.5 percent to as much as 75 percent, paving the way for the Italian carmaker’s plans to eventually merge the two auto manufacturers. Fiat wants to acquire VEBA’s 3.3 percent stake for $139.7 million, which was reached by using a formula created when the Italian company took control of Chrysler as it came back from bankruptcy in 2009.

However, other Chrysler shareholders have objected to the price, resulting to a legal dispute in court. As the majority owner, Fiat already exercises control management control of Fiat. However, owning Chrysler would allow Fiat to restructure its debt and ensure that the US carmaker generates ample cash to support its bleeding operations in Europe, according to analysts.

By December 2008, Chrysler LLC warned that it was dangerously low on cash and it might file for bankruptcy and shut down its operations permanently. Chrysler LLC and 24 of its affiliated subsidiaries eventually filed a consolidated petition for bankruptcy on April 30, 2009, at the United States Bankruptcy Court of the Southern District of New York. At that time, Chrysler was controlled by Cerberus Capital Management, a private investment company.

On May 5, 2009, bankruptcy Judge Arthur J. Gonzalez approved proposed bidding procedures that would see the assets of Chrysler be sold to entity jointly owned by VEBA, Fiat, and the United States and Canadian governments. On May 14, 2009, the carmaker filed with the bankruptcy court to terminate the dealership agreements of 789 of its dealerships.

On May 31, 2009, Judge Gonzalez approved a proposed government restructuring plan and rejected more than 300 filed objections to the sale. The new entity would be a new Chrysler – formally registered as Chrysler Group LLC.

Chrysler Group completed the transactions on June 10, 2009, thereby enabling Chrysler to emerge from bankruptcy. By the time the transactions were completed, Chrysler Group was owned by VEBA (55 percent), Fiat (10 percent) and US Department of the Treasury (for the US government) and Canada CH Investment Corporation (for the Canadian government).

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Topics: chrysler

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