Monday, January 27, 2014

Fiat Gains Full Control of Chrysler in $4.35 Billion Deal- 01/10/2014

http://www.bloomberg.com/news/2014-01-01/fiat-agrees-to-buy-rest-of-chrysler-in-4-35-billion-deal.html

4 comments:

  1. Financial overview
    (total revenue in 3Q13 was 20.7B and total EBIT in 3Q13 was 816M)
    Breakdown by geography:
    NAFTA 53% and 66%, EMEA 19% and -15%, LATAM&APAC together 17% and 32%

    Product-lines: Fiat group (RAM, Dodge, Chrysler, Jeep, FIAT brands) 100% and 80%, Luxury brands (Ferrari& Maserati) .4% and 16%, component and others.
    Profit as a % of revenues, 3.9% with Chrysler, .3% W/O
    FCF in 3Q13 (-1.4B) was -6.7% of revenue, Tangible and intangible CapEX (1.8B) was 8% of revenue


    Peer comparison
    Fiat P/S .1, operating margin 3.9%
    Industry P/S .49, operating margin 6%

    4.35 B for Chrysler full control, Chrysler's Revenue in Q3 2013 is 12.3B, P/S .35, operating margin 11%

    Outlook
    - Strategic value: leverage the technology of Chrysler and its US retail network, especially good for its luxury brands since US is the biggest market for Ferrari and Mesarati (40%-50% of global sales).
    - Production scale: C&F together 4M in 2012, comparing with 9M by VW, GM and Toyota. Increased production will reduce average fixed costs
    - Added value: Chrysler net debt 1.2B and undrawn credit line 1.0B , which added little Debt burden to Fiat, additionally Chrysler has better margins. Chrysler merger strengthened Fiat's financial performance and position.

    Risks
    - ForEx risk: Group revenues up 1%, or 8% at constant exchange rates, negatively impacted by ForEx rates

    Conclusion
    Fiat improved its business operations and financial performance after the merger, and Chrysler's low purchase price leaves more room for future upside growth.

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  2. Financials—

    GEO SEG. (BILLION) PERCENTAGE OPERATING MARGIN
    NAFTA 43.5 58% 81%
    EMEA 17.8 24% -21%
    LATIN AMER 11.1 15% 32%
    ASIA PACIFIC 3.1 4% 8%
    75.5 100%

    PROD SEG. (BILLION) OPERATING MARGIN
    CHRYSLER 51.2 59% 3.46 7%
    EXCL. CHRYSLER 35.6 41% 0.355 1%
    86.8 100% 3.815 4%


    FCF-
    Fiat SPA -1.835 86.8 -2%
    Ford Motor 2.258 146.3 2%
    Toyota Motor 2.754 250.49 1%
    General Motor 1.306 154.25 1%

    Sept. 30, 2013 -1.835 29.1 -6.3%
    June 30, 2013 0.39 31.7 1.2%
    March 31,2013 -0.57 28.4 -2.0%


    • Fiat is one of the most leveraged entities in this industry.
    • The struggling FCF is also related to FIAT’s mass-market strategy.
    • Therefore, Fiat sort of give up this mass-market strategy and give up the EMEA market to switch to the US.
    • One thing that this merge can help the FCF in the short term is that Fiat can issue bonds in US to boost their liquidity.


    The future strategy of Fiat:
    1, Give up the mass-market strategy: To move to the up-scale autos and gain more pricing power.
    2, Then sell Chrysler cars like Dodge, Jeep, which are perfect products targeting at the mass-market and middle class.
    3, With the help of Chrysler merger, Fiat is able to compete with the Germans and Japanese and become another big player in the global auto industry.

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  3. Based on 2012 data:
    7th largest automaker globally with 16 brands
    Revenues: 12% up in 2012
    Operating profit: 6% increased in 2012

    3 segments
    -Mass-market brands: 90% of total revenue, 89% of operating profit
    North America: 52%, 75%
    Europe: 21%, 20% loss
    Latin America: 13%, 28%
    Asia-Pacific: 4%, 7%
    -Luxury and performance brands: 3%, 10%
    -Components and production system: produce auto parts: 7%, 5%

    Operating profit Margin in 2012
    -Fiat: 4.4%
    -General Motors: 20% loss
    -Ford: 5%
    -Toyota: 6%
    -Honda: 6%

    Free Cash Flow/Sales in Q3 2013:
    Fiat: -6.4%
    General Motors: 3.4%
    Ford: 6.3%
    Toyota: 0.4%

    US Market share in 2012
    General Motors: 17.7%
    Ford: 14.7%
    Toyota: 14.5%
    Fiat/Chrysler: 11.9%
    Honda: 9.9%
    Hyundai: 9.1%
    Others: 22%

    Risks:
    Acquisition Chrysler worsened the liquidity risk.
    Europe market crisis: fifth straight year to decline

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  4. FIAT SpA

    Business structure (page 46)
    • 4 operating regions and 2 operating segments
    • NAFTA (U.S., Canada and Mexico) 50%; 6.3% EBIT Margin
    • LATAM (Central and South America) 13%; 9.3% EBIT Margin
    • APAC (Asia Pacific) 4%; 8.1% EBIT Margin
    • EMEA (Europe, the Middle East and Africa) 20%; negative
    • Luxury and Performance Brands 3.3%; 13.5% EBIT Margin
    • Components and Production Systems 9%; 2% EBIT Margin

    Free cash flow --MorningStar
    • 3,246 in 2010; 4%
    • -333 in 2011; -0.4%
    • -972 in 2012; -1%;
    • Large capital expenditure in recent two years; 9% in 2012

    Bull case
    • Alliance; 7th; Purchasing power; Greater scale of economy
    • Leading share position in Brazil; market leader in Brazil (23% share)

    Bear case
    • Overcapacity; pricing pressure; limiting economic profits;
    • High level of financial leverage; Debt to equity ratio 2.12 (2012); D/E ratio 3.14 (the latest quarter)
    • Moody's put the company's Ba3 credit rating under review for possible downgrade--WSJ

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