Chrysler Corp, CFC 'A' Ratings On RatingAlert Positive
7 May 1998
Chrysler Corp, CFC 'A' Ratings On RatingAlert Positive by Fitch IBCA - Fitch IBCA Financial Wire -NEW YORK, May 7 -- Chrysler Corp.'s and Chrysler Financial Corp.'s (CFC) 'A' senior debt ratings are placed on RatingAlert with positive implications by Fitch IBCA. This action follows the announcement by Daimler- Benz AG (Daimler) and Chrysler that they have agreed to combine their businesses in a "merger of equals". The combination is subject to various approvals, which Fitch IBCA thinks are likely to be granted on the merits of the transaction. The union of these two strong and profitable entities will produce the world's fifth-largest vehicle maker, as measured by 1997 pro forma unit sales of four million vehicles, including 417,000 heavy trucks. DaimlerChrysler's global market share will be about 8%. The combined company had 1997 pro forma revenues of $130 billion and EBITDA of $14.8 billion, providing a strong base from which to fund spending for growth. Because the combination will be effected for shares, and not debt, DaimlerChrysler will begin life with a strong credit profile and low debt leverage, offsetting the business risk inherent in the operations. The combination is also highly complementary in terms of business franchises and geographic presence. Daimler's lineup of premium automobiles and heavy commercial vehicles poses virtually no competition to Chrysler's forte in light trucks and mass-market passenger cars. Geographic strengths are also complementary, with Daimler's primarily in Europe and Chrysler's almost exclusively in North America. The union also addresses Chrysler's expansion potential outside its home market. Happily, there appear to be no capacity issues to be resolved between the two companies, auguring well for labor union harmony, and no necessity for massive restructuring charges. In addition to strong global growth potential, the combination suggests initial synergies in distribution and components sourcing, followed by potential savings and scale economies in engineering. DaimlerChrysler estimates benefits of $1.4 billion in 1999, the first year of merged operations, with annual benefits of $3 billion within three-to-five years. SOURCE Fitch IBCA Financial Wire