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Joseph P. Porter
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I am a retired college faculty in Philosophy, with specializations in Ethics, Socio-political Theory and Rational Choice/Decision Theory. My teaching focus was on Business Ethics, Medical Ethics and Logic. After retirement I freelanced as a Grant Writer/Fund Raising Consultant. I have taught at... More
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Joseph P. Porter's Instablog
  • Time Marchionnes On: Chrysler Redux 2 comments
    Nov 11, 2013 4:15 PM

    A month or so ago I discussed the situation Sergio Marchionne found himself in. Marchionne is the CEO of Chrysler, and also happens to be CEO of Fiat S.p.A. Marchionne has the unenviable task of conducting a successful IPO for Chrysler (requested by the Chrysler pension fund), while trying to utilize Chrysler to improve Fiat's faltering European status. [For more on the Chrysler - Fiat situation, go here.]

    The situation for Fiat is more desperate now. As luck would have it, Chrysler turned a nice profit last quarter, and was the only Fiat operation to do so. Fiat as a whole lost money.

    Fiat had a chance to buy out the pension fund (which holds approx. 42% stake in Chrysler) for $6 billion. Marchionne thought that was too much, so he opted not to exercise the option. The pension fund, miffed at being dismissed so out-of-hand by Fiat, decided to exercise its option to sell its shares in an IPO.

    The gamble (and that's what this becomes for everyone involved) is high-stakes: Chrysler has $12 billion in cash - money Marchionne wants desperately.

    But apparently not desperately enough to have paid the pension fund $6 billion for its shares.

    And now there is even more at stake: laying claim to the earnings of Chrysler Corp. Fiat needs Chrysler badly, both for the $12 billion it could use to shore up its operations elsewhere, and for the exclusive right to Chrysler earnings, which is the only money maker the Italian auto company can lay claim to. Unfortunately, the IPO it essentially pushed the pension fund to will leave Marchionne with a slew of shareholders who will expect something a bit more than $6 billion dollars.

    No wonder Italy's economy is a mess. If all of their businesses are run by people like Sergio Marchionne, it's a wonder they haven't sold the whole country to Greece.

    Themes: Chrysler, Fiat, IPO
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  • Miz Magic DiviDogs
    , contributor
    Comments (4752) | Send Message
     
    Never seemed like a very good match to start with. Maybe they oughta get a divorce.

     

    Miz
    11 Nov 2013, 08:51 PM Reply Like
  • Joseph P. Porter
    , contributor
    Comments (821) | Send Message
     
    Author’s reply » At this point, I'd be willing to agree. If the IPO ends up with a valuation for Chrysler that is higher than $6 billion, I should imagine Fiat would want to rid itself of Chrysler shares. If less than $6 billion, Fiat will have to find some figure that will placate the shareholders.

     

    Guesstimates now are that the IPO will be worth more than $6 billion, so by default Marchionne will have botched the whole deal, and will end up costing Fiat more money than they would have had they bought the pension fund out. And Fiat cannot afford to lose Chrysler (or the money to buy remaining shares).

     

    Marchionne should be fired, and a more competent CEO put in his place. Anyone but an Italian. (I know, I know - bad Joe for slamming the Italians.)
    11 Nov 2013, 09:22 PM Reply Like
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