Based on DaimlerChrysler’s recently released earnings for 2006, the Chrysler Group had revenue of $61 billion and a loss of $1.44 billion.
It is impossible to value Chrysler without determining what would happen to the company’s assets. Which would go with the new company and which would stay with Daimler? More important, what would become of the obligations? The pension liabilities. The health care benefits. These are all the expenses that the market thinks would hamper the company going forward just as they have GM (GM) and Ford (F).
But, what if the new entity were set up so that its US balance sheet and legal obligations mirrored those of GM and Ford? In other words, Chrysler would keep the burdens of operating in the US just as it would have it Daimler had never bought the company at all.
Conveniently, both GM and Ford trade at 10% of their trailing twelve month sales. That gives GM a market cap of $18 billion and Ford a market cap of $15 billion.
On that basis, Chrysler would be worth about $6 billion. The company was valued at $37 billion when Daimler picked it up in 1998. That means that the company is worth 16% of what the German company paid. That may not be far off.
Ford shares traded for over $37 in 1998. The 200 day moving average on Ford’s share price is about $7.62. So, the shares are worth about 20% of what they were in 1998. On that basis, Chrysler would be worth just under $7.5 billion.
There is a point in favor of the DCX shareholders who want Chrysler dumped. Daimler’s market cap is .41x its total revenue. If Chrysler is worth .1x, DCX shares should rise nicely without the American unit.
Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about
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