US Supreme Court Grants Stay Delaying Chrysler Sale to Fiat
By Chris Haak
In a somewhat surprising move, Justice Ruth Bader Ginsberg of the United States Supreme Court, apparently at nearly the last minute before a 4:00 deadline, has agreed to hear the Constitutional concerns of the Indiana pension funds that appealed the lower court’s decision to allow the Chrysler bankruptcy to proceed as ruled by Judge Arthur Gonzalez in the bankruptcy court in New York. The Supreme Court rarely grants emergency stays of lower court decisions. You can read Justice Ginsberg’s decision here (PDF). If you don’t feel like clicking, it’s really short:
UPON CONSIDERATION of the application of counsel for the applicants, and the responses filed thereto,
IT IS ORDERED that the orders of the Bankruptcy Court for the Southern District of New York, case No. 09-50002, dated May 31 and June 1, 2009, are stayed pending further order of the undersigned or of the Court.
Because the full court will hear the case, the sale will no longer be able to close today as the parties had hoped.
As we reported earlier, Fiat is able to walk away from the Chrysler transaction if it does not close by next Monday, June 15, 2009. Additionally, Fiat is entitled to receive a $35 million breakup fee. While the breakup fee may seem unusual for a company that hasn’t invested any cash in the transaction, Fiat has spent considerable time and executive resources preparing for the transaction.
Chrysler’s lawyers argued that there are no other bidders for Chrysler’s business as a going concern, which means that the only alternative to a transaction with Fiat is liquidation. Further, Chrysler speculated that liquidation would result in $800 million combined – far less than the company’s value were it to continue operating.
The Obama Administration’s Solicitor General, Elena Kagan, filed a request that the court the pension funds’ appeal based on similar arguments that Chrysler made. The pension funds stand to lose about $6 million of their assets because of the bankruptcy.
My guess is that Fiat will not walk away from this deal – if it’s resolved in the short term (even beyond the June 15 deadline) because it’s getting too much for too little. It’s a one-in-a-lifetime opportunity for Fiat to gain production capacity and an existing dealership network in one of the biggest new-car markets in the world with minimal upfront investment. That being said, I also do not expect Fiat to relax the deadline until on the 15th or even slightly afterward, because the deadline keeps up pressure to keep the process moving forward.
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