Fiat To Pay $1.5b For 16% Chrysler Call Option
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
More by Edward Niedermeyer
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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.
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.