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Fiat/Chrysler and the High-Stakes Game of Chicken

The Fool's own senior auto analyst, John Rosevear, sits down with Richard Engdahl for an in-depth look at Chrysler's unique situation with Fiat (NASDAQOTH: FIATY).

Now that it's helped pull Chrysler out of trouble, Fiat would love to solidify the partnership into a true merger, but a UAW trust owns a chunk of the stock. There's been talk of an IPO, but it's hardly a typical stock offering -- and may never happen at all.

A full transcript follows the video.

Richard Engdahl: Where does that leave the potential third party, which is the individual investor who might buy those shares in an IPO? What would the outlook be for an investor interested in those shares?

John Rosevear: I think shares in a combined Fiat/Chrysler would be an interesting play right now. I think it's one of those where there's a lot of risk, but there could be a lot of upside. Shares in Chrysler without Fiat wouldn't be worth a whole lot.

I am skeptical that these shares will actually ever be offered. I think we're playing a game of Chicken here, between Fiat/Chrysler on one hand, and these folks at the trust at the other hand. The backstory is kind of necessary to understand this.

I think they're going to get close to the point where it's priced, or where JPMorgan (NYSE: JPM), who is the bank on this -- and I don't say "lead bank," because no other banks will touch it -- only JPMorgan is bringing this. They were the only one named on the registration statement.

The rest of Wall Street is like, "We don't want anything to do with that," because they don't want to, presumably, burn their bridges with Chrysler.

I think it's going to get to the point where we have a pretty clear idea of where it will be priced, and then they'll settle. Somebody will throw in the hat and say, "Yeah, all right, we'll pay that," or "We'll sell for that."

Engdahl: Ultimately, you envision that there will be a Chrysler/Fiat entity at the end of all this?

Rosevear: I do. I do.

Engdahl: Do you think after all this mess is done that there might be a chance for an IPO in a totally different scenario, that's more favorable?

Rosevear: Well, Fiat's already public. They're not traded in the U.S., but you can buy Fiat shares. I think buying shares in the fully combined entity would be an intriguing proposition.

How much debt they would come out of the combination with, prospects for China expansion and so forth, a lot of these factors would play into, "Is this a buy?" Of course we'd have to know what's the price, and we don't.

But certainly they have surprised the world with their synergy and their success, in terms of the overhaul of Chrysler. If that energy can be now brought back to Italy and brought back to Fiat, which kind of needs its own overhaul, and together they want to expand into China -- they're kind of late to that party -- but where brands like Jeep could have a lot of strength.

I think it's an intriguing possibility. I wouldn't set aside the cash just yet, though.

Read/Post Comments (2) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 21, 2013, at 5:20 PM, Expert01565 wrote:

    Fool you never fail to show how stupid you really are, Chrysler shares wouldn't be much without Fiat?? umm Chrysler is the one thats saving Fiat right now,, They thought Fiat would save Chrysler but it is in fact the other way around!! Chrysler is the fastest growing auto brand!! Why is it you people sit here and compare dumb then 2 days later you just reword the same story then you take the other side of the comparision, Always taken APPLE, Ford and GM Biased much!! if you are a writer you do not take sides and be fair, you should rename yourselfs to MORONS and FOOLS!!

  • Report this Comment On October 22, 2013, at 9:26 AM, LouisTewl wrote:

    While JP Morgan may be the only bank currently involved with the IPO-that may be simply because it's not a certain enough (yet) event to involve others, but they have to have a strong lead to have legitimacy.

    However, I distinctly recall from a previous article over 6 months ago that FIAT had indeed lined up a consortium of international investment banks to fund their desired buyout of VEBA's share of Chrysler.

    I also see there is no detailed analysis--just the "we don't know" blanket of "It's intriguing," or, "It's complicated." Yes, it's intriguing and complicated-everybody can see that-that's where a 'Senior GLOBAL auto analyst' earns his money-right?

    Also, still nothing on the $1.5B Mexico plant expansion--oh well, I know there are issues of Road & Track to read, auto shows to attend, Matchbox toys to collect--Fool On!

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