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LC

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berkshiremystery Newbie

berkshiremystery

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Some of you may like this:

 

Hi Sanjeev,

 

...Taken on Sunday morning in Omaha. With John Elkann (Chairman of Fiat). Fiat owns Ferrari and John came to the Berkshire Managers’ Brunch in the Ferrari behind us. I left a gap between John and me so we didn’t cover the logo!

 

Warmly,

 

Mohnish Pabrai

 

Cheers!

 

Parsad,

 

Don´t mean to pry (read: I actually do mean to pry), but mind elaborating on why Mohnish found the urge to share him meeting Elkann. I´m guessing he met lots of interesting people last weekend (read: have you guys been discussing Fiat perchance?).

 

Man, would I have wanted to observe those two talking...

 

Could be because he knows people on the board are in interested in Fiat and because there was some speculation that Pabrai owned Fiat and had referenced it in a talk (I think Plan first mentioned Fiat as a possibility).

 

For sure,... Mohnish has shares of Fiat S.p.A. in his funds, as of Dec. 31, 2012. His average purchases at costs should be around something in the $4.70 - 4.80 range. Cheers!

 

Pabrai Investment Fund 2, June 30, 2012

Fiat S.p.A. (11.48%)

 

Pabrai Investment Fund 3, Dec. 31, 2012

Fiat S.p.A. (13.70%)

 

Pabrai Investment Fund 4, Dec. 31, 2012

Fiat S.p.A. (12.67%)

 

 

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merkhet Newbie

merkhet

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I did a little bit of research on the VEBA issue, and it seems pretty cut and dry to me.  (Bold, italics and underlines for the parts that I found instructive.)

 

(1) The Call Option Agreement states:

 

Section 2.1 Grant and Payment. (a) The VEBA hereby grants to Fiat or any of Fiat’s designated subsidiaries or permitted assigns (such optionee, the “Holder”) the right and the option (the “Call Option”) to purchase the Covered Interests, subject to the terms and conditions set forth below. The price payable by the Holder to the VEBA or the relevant VEBA Holdco, as applicable, to acquire the Covered Interests to be acquired upon any exercise of the Call Option shall be (x) in the event that an IPO has not occurred, equal to, for each one percent (1%) of the outstanding Company LLC Interests acquired (calculated on a fully diluted basis but excluding any shares subject to any unexercised portion of the Incremental Equity Call Option), the Pre-IPO Call Option Exercise Price, or (y) in the event that an IPO has occurred (or will occur contemporaneously with the exercise of the Call Options), the Post-IPO Call Option Exercise Price for each share of Company common stock acquired.

 

(2) The following definitions are in the Call Option Agreement as the following:

 

“Pre-IPO Call Option Exercise Price” means a price equal to one percent (1%) of the Company Equity Value.

 

“Company Equity Value” means (a) the product of (i) the Market Multiple times (ii) the aggregate of the Company’s reported EBITDA for the most recent four financial quarters for which financial statements have been delivered or were required to be delivered by the Company to the qualifying members of the Company pursuant to Section 12.4(a) of the Operating LLC Agreement as of the time of determination, less (b) the Company’s Net Industrial Debt, as of the date of the Company’s consolidated financial statements that were most recently so delivered or required to be delivered.

 

“Company” means New CarCo Acquisition LLC and its successors. -- (Note: Chrysler)

 

“Market Multiple” means, for any Entity, the average EBITDA trading multiple for the Reference Automotive Manufacturers (determined by each Reference Automotive Manufacturer’s Market Enterprise Value, divided by such Reference Automotive Manufacturer’s EBITDA as reported for the four most recent fiscal quarters for which financial data has been reported); provided that in determining the Market Multiple, any of the Reference Automotive Manufacturers whose EBITDA trading multiple differs from the average of the other Reference Automotive Manufacturers by more than one standard deviation shall be excluded; and provided further that the Market Multiple shall not, in any event, exceed the Fiat Multiple.

 

“Fiat Multiple” means, at any time, Fiat’s Market Enterprise Value, divided by Fiat’s EBITDA as reported for the four most recent fiscal quarters for which financial data has been reported.

 

(3) Just for completeness, I tracked down the definition of Reference Automotive Manufacturer to make sure there's no funny business there:

 

“Reference Automotive Manufacturers” means General Motors Corporation, Ford Motor Company, Volkswagen AG, Daimler AG, BMW, Renault, Toyota Motor Corp., Honda Motor Corp., Nissan Motor Corp. and Peugeot; provided that the list of Reference Automotive Manufacturers will be updated annually to eliminate any Entities that are no longer operating independently or the shares of which are no longer traded on an internationally recognized securities exchange and to make such other changes as may be agreed between Fiat and the Company (acting at the direction of its independent directors).

 

----

 

Now, I haven't read the transcript yet -- that's for later tonight or tomorrow morning -- but as a former lawyer, it seems fairly clear cut that the agreement contemplates using Fiat's multiple as a cap to amount of Market Multiple to apply. One of the first things they teach us in Contract Law is that things that don't make it into the K (contract) don't matter -- meeting of the minds, etc. blah blah blah.

 

What's VEBA's play here -- wait to see if Chrysler's EBITDA goes way up?

 

(I've attached both documents for reference.)

2009-06-10_Amended_and_Restated_Operating_Agreement_of_Chrysler_Group_LLC.pdf

2009-06-10_Call_Option_Agreement.pdf

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PlanMaestro Newbie

PlanMaestro

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Now, I haven't read the transcript yet -- that's for later tonight or tomorrow morning -- but as a former lawyer, it seems fairly clear cut that the agreement contemplates using Fiat's multiple as a cap to amount of Market Multiple to apply. One of the first things they teach us in Contract Law is that things that don't make it into the K (contract) don't matter -- meeting of the minds, etc. blah blah blah.

 

What's VEBA's play here -- wait to see if Chrysler's EBITDA goes way up?

 

(I've attached both documents for reference.)

 

You are going to have a wonderful time banging your head while reading the "debt for borrowed money" section.

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merkhet Newbie

merkhet

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Read the transcript from Veba case ongoing. Fiat case seems strong.

 

I would have to disagree. It actually seems like the judge is more sympathetic to the VEBA's interpretation of the contract than Fiat's -- though I personally think that Fiat's interpretation is the correct one.

 

Can someone explain something to me?  I've already formed an opinion on it, but I'd like to get a little bit of feedback.

 

Fiat wants to buy all of Chrysler.  The call option only covers 40% of the VEBA's interest in Fiat.  The equity repurchase agreement indicates that the VEBA can only make $4.5 billion + 9% interest as a cap.  Regardless of what Fiat ends up paying for 40% of the VEBA's share, won't the VEBA just make up the rest for the remaining 60% of its share?  I don't see how Fiat avoids paying out the full $4.5 billion + 9% interest.

 

Thoughts?

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Sportgamma Newbie

Sportgamma

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attached is the transcript. I was waiting for the owner of the transcript to ok the posting on the board

 

Thoughts after reading the document:

- The only way to compute the price in this contract is to follow the formula. Even if the formula were supposed to be a proxy of fair value it simply not relevant if it does or not. VEBA is not arguing that the price should represent fair value.

- The court will have to decide whether Fiat manipulated the formula to get a lower price outcome, by making selective adjustments to the numbers. The contract is flawed to the extent that is computation of the formula is vague/unclear on some points (f.e. the use minority interest) and flawed in other points (stating the use of GAAP numbers when Fiat reports with IFRS).

- The biggest issue is determining whether the VEBA Note is supposed to be used in the calculation of EV or not, as that is were the sensitivity to the outcome of the price is the most.

 

Gísli

 

 

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