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Chrysler IPO Plan Awaited

April 20, 2011
3 min to read


Fiat SpA will report first-quarter earnings today, and investors are expected to pepper Chief Executive Sergio Marchionne for updates on the financial dealings of partner Chrysler Group LLC.


Marchionne is close to refinancing Chrysler's $7.1 billion in government debt, which will pave the way for Fiat to increase its 30 percent stake in the Auburn Hills automaker by 16 percent, The Detroit News reported.

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Questions also are expected about when Chrysler and Ferrari will hold initial public offerings of stock.


This week in Europe, Marchionne said Ferrari may be worth $7.3 billion. Estimated values of firms are used to set the initial stock offering price.


Projecting a value for Chrysler is considered more difficult.


While some analysts think Chrysler could be the sleeper success story of the industry, others said an IPO now would fall short because of the uncertainty about the automaker's future products, profitability and dealings with Fiat.


Although Chrysler has laid out plans through 2014 for vehicles developed with Fiat, "we have no idea what they will be like," said Sean McAlinden, economist with the Center for Automotive Research in Ann Arbor.

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Marchionne wants an IPO this year, but the timing is subject to Chrysler's performance, market conditions and available capital. His recent comments that the IPO could be delayed until next year are being interpreted by investors as recognition more time is needed to erase doubt.


It's a company no one has really looked at for a decade or longer, said a member of the investment community who requested anonymity. "Chrysler is kind of in a black hole."


While General Motors was a public company before bankruptcy, Chrysler hasn't been since 1998. But financial results are being released under Marchionne's leadership for more transparency before the IPO.


Top executives are preparing to visit smaller hedge and equity funds to interest them in investing in Chrysler's debt. It would be a precursor to an IPO road show.


"A road show now would be well-received. Wall Street is always hungry to make a buck," said Rebecca Lindland of IHS Automotive in Lexington, Mass.

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But Chrysler could make more money by waiting to launch an IPO, said James Ricci, director with KPMG LLP in Detroit.


"That would provide better clarity to their performance and financials. With time, gas prices will be better understood, as will the effect of the situation in Japan. An environment of risks and unknowns is not an environment for an IPO," he said.


Chrysler could be the largest IPO of 2011, said Kathy Smith, principal with Renaissance Capital, an IPO investment adviser in Greenwich, Conn.


"But investors are not positive about the auto sector right now," Smith said, in part because GM stock is underperforming. Chrysler has been out of bankruptcy longer than GM, which had an IPO in November.


"There is not enough of a track record on which to make decisions," Lindland said.

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Chrysler "could be a sleeper (hit) or it could be a bomb. That's what they need to evaluate."

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