Chrysler is going to do an IPO for maybe around $100 million. The deal will be a Freddy Krueger bloodbath à la Halloween. Set aside the fundamentals of the car business and where Chrysler sits in the fray.
Look and then look again at Fiat vs the UAW controlled health care trust. The UAW side controls some 41.5%. Despite what a unionist may think that is not a majority. Fiat which is controlled by Sergio Marchionne. Fiat wants to buy out the union because right now they cannot access Chryslers cash to fund problematic European operations.
Chrysler has some $11.9 billion in cash. Fiat in Europe has some $13 Billion. The union is valuing Chrysler around $4.27. Fiat is saying $1.75. the union trust fund needs cash to pay obligations so they are forcing a capitalist resolution by allowing the marketplace to discover the price. Pretty clever for a trade union. they must have hired some Wall Street firm.
The deal will be a pissing match. Fiat calls the shots and can easily deflate market value with a few opportunistic problems and then make a market value offer. The union is faced with the knowledge that anything they control eventually goes bankrupt. Which would be an excellent price for Fiat.
The problem is reminiscent of a fighter ace going into a downward death spiral trying to ward of an attacker on its tail; all the while hoping to pull up just in time.
The story is very exciting and gets the left-wing right-wing blood lust going. But why the hell would you buy the stock and get on this ride. reading the WSJ daily will be just as exciting.
So whether you are a prospective investor or the union trust trying to raise some cash just remember Sergio Marchionne is not trying to put money in your pocket.
The $100 million is a pawn on this chess table. Pawns are there to be sacrificed.
George Gutowski writes from a caveat emptor perspective. Follow him on Twitter @financialskepti
Federal government is looking to sell some 30 million shares of General Motors (NYSE:GM). UAW Retiree Medical Benefits Trust will sell some 20 million. We all knew it was coming but apparently the market is surprised. The Federal government took a big risk and wants to cash out. Elections are coming and its time to get this sucker off the books. By the way the Federal Government could use the cash. Not sure for what but they always seem short.
Lets take a look at some of GM’s metrics and do a quick and dirty Buy, Sell or Hold.
- Stock is trading near its 52 week high. Range has been from $18.72 to $35.49. This would be the time to put it out.
- No dividend has been paid for all the obvious reasons. So if the dividend story starts to crank up that’s a plus.
- If the dividend story is not strong then we have a management signal about how strong the earnings are.
- The short position is some 8.95% of the float. If the stock weakens some shorts will cover and provide buying pressure. Hence the schizophrenic nature of short selling.
- RSI has been strong since mid April.
- Money Flow has been very positive since late Dec 2012.
- Momentum has been decidedly strong since mid April.
- Total amount under consideration is still less than the total short interest.
- The recent inclusion in the S&P 500 index means 85.4 million shares will be absorbed into index funds.
- Do you believe America is prepared to start buying cars? Little bit. Rising interest rates can snuff out the demand.
So on balance its a hold. Maybe write some call options. The next driver upward will need to be the reinstatement of the dividend. Obama will need to see this happen to prove his pro-market and economic savvy profile. to the extent that he cares about it. the stock is still highly politicized and will not always react to business metrics as other stocks will.
In the meantime Ford carries a 2.58% dividend yield, also trades near its 52 week high and is beholden to no one. the GM yield will need to be similar to Fords wink wink nudge nudge.
George Gutowski writes from a caveat emptor perspective. He also drives a Volvo S80 and is very happy.
Caterpillar (NYSE:CAT) makes no bones about cost reduction. It will happen. The union representing workers at the London Ontario electro-locomotive plant stuck to the standard union script and dragged out negotiations. The contract came due Dec 31. Caterpillar was seeking significant concessions. The union got it wrong. The plant is now closed permanently. 400 blue-collar guys just lost good paying jobs.
Caterpillar has no choice. High cost producers do not survive. If unions insist on intransigent stupidity they will be cleaved off.
The union? Why its the Canadian Auto Workers (CAW) a spin of from United Auto Workers (UAW). the same union theat General Motors (NYSE:GM), Ford (F) and Chrysler (XETR:FIAT) have been dealing with. You would think auto worker unions would understand the need for cost control and productivity?
George Gutowski writes from a caveat emptor perspective.
Image by Patricia Drury via Flickr
9.2% unemployment and some unions still don’t get it. An American Axle (NYSE:AXL) plant in up state New York failed to ratify the new contract. Management said thank you very much and closed the plant. Management was offering $30 per hour. Now unionized workers have zero. Less than zero when you start to consume your savings.
American Axle was a spin-off from the old General Motors and has a lot of legacy issues. Workers got too greedy and now they are out of work with no prospects. So when you look at that 9.2% number it’s not all bad luck. Some of it is self-inflicted. Now workers will be a drain on the government instead of contributing to a better society.
Smart boys really smart.
Disclosure: George Gutowski writes from a caveat emptor perspective. I generally am disdainful of entrenched unions that suck blood and oxygen without real regard for union membership. I hold no positions in stocks mentioned in this post. I have no plans to initiate new positions within the next 72 hours.