The Chrysler Takeover Attempt - Case Solution. Essay

1013 Words Sep 18th, 2011 5 Pages
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
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5. Evaluate the structure of Kerkorian’s proposed deal in detail. Does it make sense? What risks are involved? What would you do differently?
From our point of view, the most salient risk of the offer is that it was made without having the funds raised beforehand!
In this respect we would definitely differ from Kerkorian’s approach and clarify the funding at first. It is also unclear, whether the reduced cash amounts are enough to serve the needs of a possible future downturn. On the other hand, an increased leverage of the firm (as a consequence of the takeover) yielded in a higher intrinsic value per share for Chrysler. Target Debt/Debt+Equity | Resulting intrinsic value/share | 10% (current management case) | $86.23 | 18% | $89.33 | 25% | $92.24 |
6. If you were Eaton, how would you respond to

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