The Chrysler Takeover Attempt - Case Solution. - 1014 Words

Case 2 – The Chrysler Takeover Attempt 1. Evaluate Chrysler’s financial and operating performance between 1980 and 1992. What financial and investment policies did they pursue and why? How successful were they? During the early 1980s Chrysler recovered from a severe enterprise crisis in 1978. Vehicle sales grew stable from 1980 to 1986 (with a small stagnation in 1982). In 1983 they grew much stronger than the U.S.-vehicle market and their competitors. This reflected in a steady earnings growth and Chrysler was able to repay a granted government loan 7 years earlier than initially scheduled. In 1987 their vehicle sales declined, due to a lack of investments in new product lines, Chrysler had no major new car developments in the†¦show more content†¦However, (already anticipating findings of the following questions), a higher leverage would increase the value of the company severely. * 3. What is the intrinsic value of a share of Chrysler stock? How does that value compare to the market’s valuation? * The intrinsic value of a share, based on the Net Present Value of a 10 year Cash Flow projection plus Terminal Value calculation would be $86.23. This is an excess of $31.23/share compared to the Kerkorian offer of $55. * The intrinsic value calculation is based on the following main assumptions: * Moderate sales growth rate of ~3.5% per annum * EXCEPTION: Assumed crisis in 2002 which leads to a sales decline of 20% for Chrysler. Historical data suggests some evidence that there is a decline in automotive sales every 4-6 years. Otherwise the Intrinsic value p er share would be even higher * Please refer to the Excel sheet for detailed calculations/assumptions. * 4. Why is Chrysler a takeover target? Would there be any value created by a takeover? Chrysler has a significant amount of $7.5 billion cash reserve. Holding excessive cash reserves make companies an attractive takeover target, because parts of the deal can be financed through the cash reserves. Chrysler argued that the cash was necessary for overcoming the next downturn period. Kerkorian on the other hand says that this amount of cash is far tooShow MoreRelatedChrysler - Case Study10414 Words   |  42 PagesCHRYSLER CORPORATION: NEGOTIATIONS BETWEEN DAIMLER AND CHRYSLER âˆâ€" In January 1998, Jà ¼rgen Schrempp, CEO of Daimler-Benz A.G., approached Chrysler Corporation Chairman and CEO, Robert Eaton, about a possible merger, acquisition, or deep strategic alliance between their two firms. Schrempp argued that: The two companies are a perfect fit of two leaders in their respective markets. Both companies have dedicated and skilled work forces and successful products, but in different markets and differentRead MoreChrysler in Trouble5968 Words   |  24 Pagesexpansion since the late 1900s. 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