It’s No Accident Chrysler’s IPO Pitch Full of Doom and Gloom

All it takes is a quick glance at Chrysler’s 396-page IPO stock prospectus to tell which way its management is leaning.

CEO Sergio Marchionne has made it clear he and the other company he runs, controlling shareholder Fiat (58.5%), are not in favor of the IPO, which is being forced by the United Auto Workers union’s VEBA Trust that oversees retiree health care and owns the remaining stake in Chrysler.

The VEBA’s decision to trigger the IPO option is meant to force Fiat into paying as high a price as possible in order to acquire the last piece it needs to take full control of the Detroit automaker.

A total merger of Chrysler and Fiat would give Marchionne greater flexibility over cash flow and more easily manage the financial ups and downs between the two companies.

Fiat would prefer a negotiated deal to acquire the VEBA’s stock, rather than making it public and being forced to buy shares on the open market, providing the group accepts what the Italian automaker considers a fair price. However, after months of negotiation, the two sides haven’t been able to agree to terms, putting them on the IPO path instead.

Of course, stock prospectuses are required to clearly state risk factors for investors. But they tend to play up the positives a bit more than the negatives.

To be fair, there are a lot of pluses spelled out here, too, as the automaker details its growing market share, slimmed-down and more-profitable dealer network, improved quality and award-winning vehicles.

But it seems harder than usual to ignore the minuses in the Chrysler IPO pitch, which packs in more doom and gloom scenarios than a Stephen King novel.

The prospectus lays out in great detail the potential negative impact of an IPO on the future of the U.S. automaker, including possible management conflict of interest, or perhaps disinterest, in a publicly owned Chrysler run by Fiat.

Cost-saving product-, parts- and technology-sharing could become more difficult, the document explains, if the two companies aren’t one, and critical plans to expand the Detroit-based automaker internationally could be at risk. Chrysler’s chances of meeting upcoming tougher fuel-economy and emissions laws in the U.S. also could be jeopardized, the document emphasizes.

But it all boils down to one thing: If it doesn’t get its way, Fiat could pack up and go home, leaving Chrysler to fend for itself once again. And we all know how that story likely would play out.

What the VEBA has to decide is whether potential investors zeroing in on the prospectus’ not-so-fine print will see that threat as a realistic one or view it as just a smart poker move by Marchionne to bluff his way into winning another big pot.

While it’s unlikely Fiat would sever ties – it needs Chrysler as much or more right now as the other way around, it wouldn’t be the first time a marriage that seemed the perfect match has ended in bitter divorce.

That could be enough of a concern to keep a lid on the IPO’s opening price and severely limit the VEBA’s haul. At least that seems to be the prospectus’ primary objective.

The bottom line? Neither side appears to have the clear-cut winning hand in this one, meaning a negotiated deal may be the more reasonable route.

Sometimes it’s best just to cash in what chips you have and go home.