Fiat To Pay $1.5b For 16% Chrysler Call Option

Edward Niedermeyer
by Edward Niedermeyer

That’s right folks, for the first (and likely only) time, Fiat will be putting cash on the table for Chrysler’s equity, as Reuters reports that Fiat’s new credit facility will include $1.5b with which to exercise the 16% call option in its agreement with the US Treasury. At that rate, Chrysler’s market value would be under $10b, considerably less than the nearly $13b spent on Chrysler’s rescue (not counting assistance to Chrysler Financial). But what is Chrysler actually worth? Hit the jump for a look at what Chrysler’s Shareholder Agreement says about valuation in a Fiat Call Option scenario.

According to the document governing the ownership of Chrysler, Fiat’s “Incremental Call Option” allows it to buy up to 16% of Chrysler’s equity at a “Pre-IPO Call Option Price” that is defined as “a price equal to 1% of the Company Equity Value.” The formula for Company Equity Value is defined as:

(a) the product of (i) the Market Multiple times (ii) the aggregate of the Company’s reported EBITDA for the most recent four financial quarters for which financial results have been reported by the Company as of the time of determination less (b) the Company’s Net Industrial Debt as of the date of the Company’s consolidated industrial financial statements that were most recently delivered to the qualifying Members pursuant to Section 12.4(a).

Based on the contract’s formula, we’re looking at a roughly $9b valuation: full-year (modified) EBITDA for 2010 was $3.46b, while “Net Industrial Debt” at the end of last year was $5.8b.The “Market Multiple” (Equity Value/EBITDA) is indexed to the major automakers, but in any case it may not exceed Fiat’s Value/EBITDA multiple, which is currently around 4.3. That would have put Chrysler’s pre-IPO equity at around $9.078b (best-case) going into 2011 (even though Chrysler filed a valuation based on an “income approach” that placed its value at $4.8b as of the start of 2011). We’ll still have to see what Chrysler’s new debt structure looks like post-refinancing, but in the meantime feel free to add your thoughts about Chrysler’s valuation


Edward Niedermeyer
Edward Niedermeyer

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  • Shiney2 Shiney2 on Apr 16, 2011

    Fiat got a lot of value in Chrysler - but the US and Chrysler got a lot of value out of the deal by preventing an uncontrolled bankruptcy and further job losses. Seems like a good deal all the way around.

  • Tparkit Tparkit on Apr 16, 2011

    Nice try, Shiney2... there is no such thing as an "uncontrolled bankruptcy" - except the ones that get done in Washington for political purposes, where due process is destroyed in acts of piracy and patronage.

  • FreedMike Off topic, but folks, this site is not working well for me from a technical standpoint, and it doesn't matter if I'm using my phone, or my computer (on two different browsers). It locks up and makes it impossible to type anything in after a certain point. Anyone else having these issues?
  • Syke Kinda liked the '57, hated the '58. Then again, I hated the entire '58 GM line except for the Chevrolet. Which I liked better than the '57's. Still remember dad's '58 Impala hardtop, in the silver blue that was used as the main advertising color.
  • Dartdude The bottom line is that in the new America coming the elites don't want you and me to own cars. They are going to make building cars so expensive that the will only be for the very rich and connected. You will eat bugs and ride the bus and live in a 500sq-ft. apartment and like it. HUD wants to quit giving federal for any development for single family homes and don't be surprised that FHA aren't going to give loans for single family homes in the very near future.
  • Ravenuer The rear view of the Eldo coupe makes it look fat!
  • FreedMike This is before Cadillac styling went full scale nutty...and not particularly attractive, in my opinion.
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