DETROIT/WASHINGTON (Reuters) - Chrysler’s market value increased nearly fivefold during its first 18 months managed by Fiat SpA FIA.MI and its top executive Sergio Marchionne, according to a valuation provided by the company.
Chrysler Group LLC was valued at about $4.8 billion as of December 31, an analysis of the company’s February 25 filing with the U.S. Securities and Exchange Commission shows.
This is sharply higher than the company’s estimated value of $996 million in June 2009 when it emerged from a U.S.-funded bankruptcy as U.S. auto sales slid to their lowest level since the early 1980s.
The numbers represent an early glimpse into the potential valuation of the company as it lays the groundwork for an initial public offering expected in the second half of 2011.
Chrysler arrived at the valuation to set pay for its top executives, including Marchionne. Senior executives are paid partly through so-called deferred phantom shares, which will convert to shares in the company at a later date.
In June 2009, each share was worth $1.66, according to the filing. By the end of 2010, the value of each share was $7.95.
In the filing, Chrysler warned that the actual value of each share could vary depending on when the stock is paid.
The jump in Chrysler’s value came alongside the sharp improvement in U.S. auto sales, which rose more than 11 percent in 2010. This snapped a four-year slide that forced Chrysler and its larger rival General Motors (GM.N) into a wrenching restructuring that included U.S. funded bankruptcies.
Secured lenders in Chrysler’s bankruptcy received $2 billion for surrendering their claim on the company to a group that included a trust affiliated with the United Auto Workers union that now owns the majority of Chrysler.
“Going from close to $1 billion to $5 billion, I think is reasonable given the change in the economic outlook and viability of the auto manufacturers,” said Dennis Virag, president of the Automotive Consulting Group.
In a statement to Reuters, Chrysler said it “assumed” 1 million so-called Class A and Class B membership interests were outstanding as of the end of 2010.
Each interest translates to 600 phantom shares or units, which means there are 600 million shares in the company.
“Under this methodology, an estimated value of $7.95 per Chrysler Group unit implies a company value of approximately $5 billion at 12/31/2010,” the company said in a statement.
In the February 25 filing, Chrysler said it arrived at the $7.95 figure through an “income approach.” Chrysler spokeswoman Eileen Wunderlich declined to expand beyond the filing.
Virag projected the company’s valuation could be between $7 billion and $8 billion by the second half of this year, boosted by its revamped models and an upswing in auto sales.
Virag said Chrysler’s valuation could jump even higher, but the automaker still had to overcome consumer concerns over the quality of its vehicles.
In February, while U.S. auto sales rose 27 percent, surpassing even the most bullish analyst estimates, Chrysler sales rose just 13 percent.
“You can’t have a significant valuation gain when you’re behind the competition,” Virag said.
Chrysler is in advanced discussions with a range of banks to refinance its roughly $7 billion owed to the U.S. and Canadian governments as part of its bailout.
The refinancing is expected to clear the way for an IPO, which would bring the automaker back to the public market for the first time since 1998, when it was purchased by Daimler AG (DAIGn.DE) in what became a failed merger.
Reporting by Deepa Seetharaman; editing by Carol Bishopric