The New York Times’ Dealbook recently highlighted Fiat’s offer of $198 million for 3.3% of Chrysler’s stock. Fiat, which currently owns 58.5% of Chrysler, is looking to consolidate ownership and further integrate its American subsidiary.
The offer implies an enterprise valuation of $6.7 billion for the entire firm. However, many, including the article’s author, believe that Chrysler is worth much more (see Valuing Chrysler Too Cheaply).
Mr. Marchionne’s offer values Chrysler at just four times his own expectation of the company’s 2012 net income. General Motors, meanwhile trades above nine times expected earnings for last year, and Ford Motor’s multiple is just over 10 times.
The Fiat proposal also pegs the enterprise value of Chrysler at $6.7 billion, scarcely more than the company’s $5.5 billion of…Ebidta…Ford’s enterprise value-to-Ebidta multiple is over five times; G.M.’s is just 2.6 times, partly thanks to $20 billion of net cash. That makes Mr. Marchionne look mighty cheap.
Sergio Marchionne, Fiat’s chief executive, admits that the offer might not be in line with Chrysler’s current performance. However, I am more interested in understanding why Fiat would undervalue Chrysler. Given Fiat’s current struggles, I can’t help but wonder if the real issue is that Fiat can’t afford to buy it anymore…