Chrysler’s IPO filing could hurt Fiat ambitions

Chrysler Group was forced to file paperwork for an IPO by its second-biggest shareholder on Monday, escalating a discussion with main owner Fiat which said it could scale back its commitment to the U.S. automaker.

Fiat, which owns 58.5% of Chrysler, wants to take full control and buy out the rest of the stock owned by the United Auto Workers trust fund, but has stalled the more $5 billion being demanded.

In response, the UAW trust exercised a right enshrined in Chryslers 2009 government-financed bankruptcy to go forward with an initial public offering, stepping up pressure on Sergio Marchionne, chief executive of both automakers, to reach a deal. It should be added that bankers and analysts view the filing as a move by the UAW trust to extract a better offer from Fiat and many wager an IPO will never take place.

The IPO, which for the purposes of calculating the regulators registration fee was estimated at up to $100 million, will be underwritten by JP Morgan. Marchionne said in mid-September that if an IPO happens, it is likely to take place in the first quarter of 2014. Chrysler did not say how many shares will be offered in the sale. The UAW trust fund intends to use the proceeds to pay for medical benefits for blue-collar Chrysler retirees.

Under Marchionne, Chrysler has mounted an unlikely comeback that has pushed its valuation to around $10 billion, according to some analyst estimates. The U.S. automaker is now supporting Fiats bottom line, rather than the other way around.

Chrysler and Fiat currently are forced to manage their finances separately, even though they are run by the same executive team. A full merger would make it easier to combine the cash pools of the two companies, giving Fiat more funds to expand its product lineup.

Chrysler, based in suburban Detroit, had cash and cash equivalents of $12.2 billion as of June 30. Its net profit in the first half of the year fell 21% to $764 million from $966 million in the previous year.

Chrysler remains heavily reliant on North America, which accounted for 90% of vehicle sales in the first half of 2013. It added that its lineup of smaller, less expensive cars are not as competitive as its larger, more profitable vehicles.

The Jeep brand is doing really well. Some analysts even define it as “a sleeping giant”. Last year, Jeep global sales more than doubled but most of that growth was in North America. In the rest of the world Jeep has little presence, but great brand recognition. Chrysler has plans to eventually build Jeep models in China to be sold in China.