According to several people familiar with the matter, the retiree healthcare trust that owns a big stake in Chrysler Group LLC would force the company to go public unless Fiat pays more than $5 billion for the shares.

Sergio Marchionne, chief executive of both Chrysler and Fiat, is eager to buy out the trust’s 41.5% stake in Chrysler as quickly and as cheaply as possible so he can merge the two companies, which would form the world’s seventh-largest auto group.

Still, the talks are at a deadlock, as Marchionne believes United Auto Workers-affiliated trust’s price values Chrysler at more than it is worth. The trust gained control of the shares in 2009, following the company’s government-funded bankruptcy restructuring. The price, more than $5 billion represents the highest possible payout for the trust, according to a formula laid out in Chrysler’s 2009 bankruptcy documents.

“If you were a seller and you thought the price was rising over time, you’d layer in your selling price, you’d sell it in stages,” said one of the people familiar with the matter. “That happens to be the opposite of what Sergio wants.”

According to the sources, the trust has the legal duty to pursue every possible path to maximize the value of those shares so it has no intention to sell the Chrysler stake for less, as failing to do so would likely expose it to legal liability.

If the two sides cannot agree on a price, the trust plans to sell a portion of its stake in an IPO, and divest the rest of its stake in stages over time, the people said. The UAW Retiree Medical Benefits Trust has been talking to banks about selling roughly one-fifth of its stake through an IPO, one person said. Fiat owns the rest of Chrysler, or 58.5%.

Via Reuters


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