imperial capital - daimler - final

Acquisition opportunity of Audi AG

Prepared for Daimler AG

London, November 2016

Prepared for Daimler AG | Confidential 2

Disclaimer

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Executive Summary

Acquisition of Audi AG

Drivers of Value Transaction Structure

Market Outlook

We recommend Daimler acquire 49.9% stake in Audi,

and seek joint operational control of the firm.

With 'Vorsprung Durch Technik’ (Progress through

Technology) at the core of their mission, Audi has played a

key role in the development of the automobile industry.

This merger accelerates our strategy to extend our leading

brands into new robust opportunities.

Positive macroeconomic outlook combined with low costs

of debt creates fertile environment to carry out the

transaction.

Automotive:

Sales in Europe have improved YoY, still below 2007 levels.

US markets are at peak levels.

Continued underperformance against expectations in

Emerging Markets.

By completing the deal Daimler gains exposure to new

technologies that Audi possesses,

including autonomous driving and electric cars.

Low Cost of Capital Environment

Shared Cost Base of New Regulatory Compliance

Reshaping the Value Proposition

Embracing Platform Modularisation

All cash offer, financed by

33.3% cash on hand and 66.6% new debt.

Taking all valuation methods into account we consider a

range of $56.0bn – $66.0bn for Audi’s business.


Imperial CapitalDeal team

Igor Kalota John TriesteAdrian Radu Max Rooney Kitan Oladapo

MSc Investment &

Wealth Management

Imperial College

Business School

Mr Kalota joined the

company in 2006 as

an Analyst. Currently

acts as Managing

Director at Imperial

Capital.

MSc Finance

Imperial College

Business School

Mr Trieste joined the

company in 2011 as

Vice President.

Currently acts as

Managing Director

of Industrials at

Imperial Capital.

MSc Investment &

Wealth Management

Imperial College

Business School

Mr Radu joined the

company in 2012 as

Vice President. At

the moment he is

Managing Director

at Imperial Capital.

Previously worked at

Jefferies.

MSc Finance

Imperial College

Business School

Mr Rooney joined

the company in 2010

as an Associate.

Currently he holds

position of

Managing Director

at Imperial Capital.

MSc Finance

Imperial College

Business School

Mr Oladapo joined

the company in 2007

as an Analyst.

Currently he is

Managing Director

in M&A department

of Imperial Capital


Imperial CapitalOur experience

• Imperial Capital is a top global Investment Banking boutique specialising in M&A transactions, with particular expertise in the TMT, Industrial and Health

Care sectors. The company was established in 2001 and has since experienced constant growth fuelled by our expertise and focus on clients’ needs.

• Currently we have 5 offices across 3 continents and employ over 200 people in investment activities, giving us wide geographical exposure and

expertise across the globe. Total value of our deals surpassed $1.2tn mark in 2015.

• We pride ourselves on going beyond advisory. Our mantra is that we only win when the client’s win and our median client relationships length

stretches beyond 7 years. The longevity of our client relationships is our greatest achievement.

OUR RECENT DEALS INCLUDE

$40bn Acquisition of

Twotter by TechFund

Lead financial

advisor to TechFund

August 2016

$30bn Acquisition of

Nazda by

Specific Motors

Financial advisor to

Nazda

June 2016

$10bn Reverse

Takeover of HiPi by

ProInvest

Lead financial

advisor to Dall

May 2016

$12.5bn Acquisition

of LuxMed by BUBA

Lead financial

advisor to BUBA

March 2016

$6.7bn Acquisition of

UKHospital by BUBA

Financial advisor to

BUBA

December 2015

Providing the crown jewel in our Client’s strategy

Prepared for Daimler AG | Confidential

1. Market Overview

1.1 Macroeconomic Outlook

1.2 Automotive Industry - Worldwide

1.3 Automotive Industry – Germany

1.4 Automotive Industry – China

2. Daimler Overview

3. Audi Overview

4. Valuation

5. Investment Highlights

6. Transaction

7. Appendix

Agenda


INFLATION US AND EURO AREA

Market OverviewMacroeconomic Outlook

MARKIT COMPOSITE PMI AND CONSUMER CONFIDENCE INDEXLONG TERM BOND YIELDS

YOY PERCENTAGE GDP GROWTH KEY MARKETS

-1%

0%

1%

2%

3%

4%

5%

01.10 01.11 01.12 01.13 01.14 01.15 01.16

US 10 Yr German 10 Yr

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

01.16 02.16 03.16 04.16 05.16 06.16 07.16 08.16 09.16

Core PCE US HCPI Euro Area (28 Countries)

-10%

-5%

0%

5%

10%

15%

20%

03.05 03.07 03.09 03.11 03.13 03.15

US China Germany Euro Area

Source: Bloomberg, Eurostat

Low debt costs and EM growth drive global consumption

60

70

80

90

100

110

50

52

54

56

58

60

62

11.13 05.14 11.14 05.15 11.15 05.16

Germany PMI (Left Axis) US PMI (Left Axis) Confidence Index (Right Axis)


GEOGRAPHIC TRENDS

8

Market OverviewAutomotive Industry - Worldwide

North America

• 2015 set sales record of approximately 17.5m vehicles in the US.

• Mexican auto sales increased 19.0% in 2015 to approximately

1.3m vehicles.

Europe

• German new car registration increased by 7.7% in 2015.

• EU auto sales are weak due to weak growth environments in many

member states.

Emerging Markets

• Contractionary environments in commodity dependent economies

(Russia and Brazil) present headwinds, robust growth in China.

0

10

20

30

40

50

60

70

80

1990 to

1999*

2000 to

2012*

2013 2014 2015 2016

CHINA AND US MARKETS (MILLIONS)

FUEL PRICES

WORLDWIDE CAR SALES (MILLIONS)

-30%

-10%

10%

30%

50%

70%

90%

110%

8

10

12

14

16

18

20

01.07 01.08 01.09 01.10 01.11 01.12 01.13 01.14 01.15 01.16

US Auto Sales (M, Left Axis) China YoY Passenger Car Sales (Right Axis)

0

1

2

3

4

5

0

20

40

60

80

100

120

140

01.13 07.13 01.14 07.14 01.15 07.15 01.16 07.16

WTI ($, Left Axis) Brent ($, Left Axis) On Highway Diesel ($, Right Axis)

Source: Bloomberg, Scotiabank

Record high car sales spurred by low fuel costs


21%

9%

8%

8%7%

7%

6%

3%

3%

27%

VW

Mercedes

Audi

BMW

Opel

Ford

Skoda

Renault

Hyundai

Other

9

Market OverviewAutomotive Industry - Germany

• Germany’s automotive sector accounts for 33.0% of the country’s

total industry R&D expenditure.

• In 2013 approximately 77.0% of cars manufactured in Germany were

exported.

• Domestic market growth looks poised to grow at a modest pace.

• Industry is fragmented with VW Group carrying the largest market

share.

• Carbon based fuel sources still dominate the industry but electric

vehicles are increasingly capturing market share.

• The number of passenger cars per 1,000 people in Germany has

remained relatively flat at just under 550 in the past four years.

TOTAL MOTOR VEHICLE MANUFACTURING REVENUE (BILLIONS)

NEW CAR REGISTRATIONS BY FUEL (THOUSANDS)INDUSTRY ANALYSIS

NEW PASSENGER VEHICLE REGISTRATION BY COMPANY (2015)

Source: Bloomberg, Eurostat, ACEA

0

50

100

150

200

250

300

350

400

450

500

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

0.0

0.5

1.0

1.5

2.0

2.5

0

50

100

150

200

01.12 07.12 01.13 07.13 01.14 07.14 01.15 07.15 01.16 07.16

Diesel (Left Axis) Petrol (Left Axis) Electric (Right Axis)

Fragmented and changing market presents opportunities

3.2m in total


13%

8%

6%

5%

5%5%

5%

4%

4%

2%

23%

Volkswagen

Wuling

Hyundai

Nissan

Chang'an/Chana

Toyota

Buick

Chevrolet

Honda

Audi

Other

10

Market OverviewAutomotive Industry – China

• China, the world’s fastest growing automotive market, is extremely

fragmented and there are ample opportunities for expansion.

• Explosive growth in emerging market economies relative to

developed countries means they will be taking a much larger market

share by 2018.

• Passenger car sales in China are set to more than double from 2011

levels by 2018.

• China is increasingly becoming a hub for automobile manufacturing,

making up almost a quarter of global automobiles.

• Establishing a presence in this pivotal market is essential for

remaining globally competitive in the future.

PASSENGER CAR SALES GLOBAL MARKETS (MILLIONS)

CHINA CARS PRODUCTION AS A SHARE OF WORLD PRODUCTIONINDUSTRY ANALYSIS

Source: CAAM, BMW

0

5

10

15

20

25

30

35

40

China United

States

Japan Brazil Germany India ASEAN

countries

Russia

2011(M) 2018(M)

0%

5%

10%

15%

20%

25%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

15.8m in total

CHINA UNIT SALES BY COMPANY (2012)

Emerging Markets are rapidly increasing in significance


1. Market Overview

2. Daimler Overview

2.1 Company Snapshot

2.2 Financial Snapshot

3. Audi Overview

4. Valuation


6. Transaction

7. Appendix

Agenda


• Daimler Group is a leading German automotive manufacturer

across global automotive markets headquartered in Stuttgart, DE.

• Product range includes entry to premium passenger cars, vans,

trucks and buses.

• Worldwide manufacturing and development operations in

19 countries, with over 8.5k sales centers and employing 284k

people across the globe.

• Operational divisions include Daimler trucks, Daimler buses,

Daimler financial services and champion brand Mercedes-Benz.

• Largest market is Western Europe (inc. Germany) with ca. 33.2% of

revenue, for which it holds 6.0% market share, followed by the US,

its second largest market.

54%

24%

7%

3%

12%Mercedes-Benz Cars

Daimler trucks

Mercedes-Benz Vans

Daimler buses

Daimler Financial

Services

33%

32%

23%

12%

Western Europe

NAFTA

Asia

Other Markets

Mercedes-Benz

Daimler(Trucks & Buses)

Daimler

Financial

Service

COMPANY OVERVIEW

DAIMLER GROUP STRUCTURE

REVENUE BREAKDOWN BY DIVISION IN 2015

REVENUE BREAKDOWN BY REGION IN 2015

Daimler OverviewCompany Snapshot

Source: Bloomberg, Daimler

Top global player in premium automobiles market

EUR149.5bn

EUR149.5bn


EURbn 2011 2012 2013 2014 2015

Revenue 106.6 114.3 118.0 129.9 149.5

YoY 9.0% 7.3% 3.2% 10.1% 15.1%

Gross profit 25.5 25.5 25.2 28.3 31.8

Gross margin 24.0% 22.4% 21.4% 21.8% 21.3%

EBITDA 12.3 12.3 11.7 14.0 17.6

EBITDA margin 11.5% 10.7% 10.3% 11.1% 12.1%

Net income 5.8 5.9 4.9 7.6 8.7

Net margin 5.4% 5.2% 4.2% 5.9% 5.8%

Total assets 148 163 168 190 217

Current assets 61 67 70 77 91

Cash 10 11 11 10 10

Stockholders’ equity 41 39 43 45 55

Liabilities 107 124 125 145 163

Debt 48 59 60 70 83

Net debt/EBITDA* -1.3x -1.3x -1.5x -1.5x -1.3x

Operating cash flow -0.7 -1.1 3.3 -1.3 0.2

Investment cash flow -6.5 -8.9 -6.8 -2.7 -9.7

Financing cash flow 5.8 11.5 3.9 2.3 9.6

Net cash flow -1.3 1.4 0.0 -1.4 0.3

CAPEX 4.2 4.8 5.0 4.8 5.1

• 12/99 Daimler acquired 50% stake in McLaren Formula One

• 10/00 Daimler acquired Chrysler Group, forming DaimlerChrysler

• 10/00 Acquired 100% of Detroit Diesel Corporation

• 01/05 Daimler acquired high performance tuning company AMG

• 01/05 Daimler completed the sale of Chrysler to Cerberus Capital

Management

• 11/09 Daimler acquired Westfalia Manufacturing Plant in

Germany

PROFITABILITY IN 2011-2015 PERIOD (EUR BILLIONS)

KEY DEVELOPMENTS

KEY FINANCIALS IN 2011-2015 PERIOD

Daimler OverviewFinancial Snapshot

* - Net debt/EBITDA excludes impact of Financial Subsidiary’s accountsSource: Bloomberg, Daimler, Zephyr

0%

2%

4%

6%

8%

10%

12%

14%

0

20

40

60

80

100

120

140

160

2011 2012 2013 2014 2015

Revenue (Left Axis) EBITDA (Left Axis)

EBITDA Margin (Right Axis) Operating Margin (Right Axis)

Strong financial performance is a key driver


1. Market Overview

2. Daimler Overview

3. Audi Overview

3.1 Company Snapshot

3.2 Financial Snapshot

3.3 Snapshot of Daimler and Audi Combined

4. Valuation


6. Transaction

7. Appendix

Agenda


• German luxury automobile manufacturer with over 83k employees

headquartered in Ingolstadt, DE.

• Audi also owns Italian sports car manufacturer Lamborghini SpA

and motorbike maker Ducati.

• Largest market is Europe (exc. Germany, c. 33.4% of revenues).

• Experienced revenue growth in every geographical segment since

2010. Revenues in North America and Asia – Pacific have grown at

the fastest rate of the period, increasing by over 100%.

• Consistent growth in vehicles sold since 2010 resulting in an

increase of 57% with over 2m vehicles sold worldwide in 2015.

• Subsidiary company of Volkswagen since 1966.

Audi OverviewCompany Snapshot

COMPANY OVERVIEW

REVENUE BREAKDOWN BY REGION IN 2015

33%

26%

21%

19% Rest of Europe

Asia - Pacific

Germany

North America

South America

Africa

AUDI

Source: Bloomberg, Audi


75%

12%

10%3%

Audi

Ducati

Lamborghini

Giugiaro

AUDI’S BRANDS

A leading manufacturer of premium automobiles

EUR58.4bn

EUR58.4bn


Audi OverviewFinancial Snapshot

PROFITABILITY IN 2011-2015 PERIOD (EUR BILLIONS) KEY FINANCIALS IN 2011-2015 PERIOD

6%

8%

10%

12%

14%

16%

18%

0

10

20

30

40

50

60

70

2011 2012 2013 2014 2015

Revenue EBITDA EBITDA Margin Operating Margin

Source: Bloomberg, Audi, Thomson Reuters

• The vision of Audi’s Strategy 2020 is to develop Audi into the

world’s leading brand in the premium automobile segment.

• Lead the way in both design and technology through innovation

by focusing on efficiency of products, connected automated

driving and appealing vehicle architecture.

• Expand worldwide production structures to establish a broader

network and increase international dealerships in major growth

markets.

• Steady growth of demand for cars; growth in 2015 was 9.0% in

Western Europe, and 2.6% globally.

• Low fuel prices due to the collapse in the price of crude oil since

2014 have been a boost to automobile sales.

COMPANY OVERVIEW

EURbn 2011 2012 2013 2014 2015

Revenue 44.1 48.8 49.9 53.8 58.4

YoY 24.4% 10.6% 2.3% 7.8% 8.6%

Gross profit 8.2 9.7 9.2 9.4 11.4

Gross margin 18.6% 19.9% 18.4% 17.4% 19.5%

EBITDA 8.6 7.3 7.1 7.6 7.4

EBITDA margin 19.6% 14.9% 14.2% 14.1% 12.7%

Net income 5.4 4.3 4.0 4.4 4.2

Net margin 12.3% 8.8% 7.9% 8.1% 7.2%

Total assets 37 40 45 51 57

Current assets 25 22 25 28 31

Cash 10 13 16 15 17

Stockholders’ equity 13 15 19 19 22

Liabilities 24 25 27 32 35

Debt 1 1 1 2 2

Net debt/EBITDA -1.2x -1.6x -2.0x -1.7x -2.0x

Operating cash flow 6.3 6.1 6.8 7.4 7.2

Investment cash flow -6.9 -4.8 -2.7 -8.9 -2.2

Financing cash flow -0.7 -1.6 -1.8 -1.3 -1.5

Net cash flow -1.4 -0.3 2.3 -2.8 3.5

CAPEX 2.9 3.3 3.6 4.3 4.8

Stable revenues demonstrate financial discipline



Merger OverviewSnapshot of Daimler and Audi Combined

EURbn 2015

Revenue 207.9

YoY 13.2%

Gross profit 43.2

Gross margin 20.8%

EBITDA 25.9

EBITDA margin 12.5%

Net income 12.9

Net margin 6.2%

Total assets 274

Current assets 122

Cash 27

Stockholders’ equity 77

Liabilities 198

Debt 85

Operating cash flow 7.4

Investment cash flow -11.9

Financing cash flow 8.1

Net cash flow 3.8

CAPEX 9.9

39%

21%

19%

9%

5%3%3%

Mercedes-Benz

Audi

Daimler Brands

Daimler Financial

Services

Mercedes-Benz Vans

Ducati

Lamborghini

EUR207.9bn

Mercedes-Benz

AUDI

Daimler(Brands &

Financial Services)

Source: Bloomberg, Daimler, Audi, Statista

• Combined Half-year luxury car sales from

January to June 2016 is approximately

2.08m units worldwide.

• Tremendous Research & Development

capabilities, with Daimler and Audi R&D

expenditure totaling over €10.8bn.

Combined, the partnership will emerge

automotive leader in R&D.

• Combined passenger car sales in China for

Audi and Mercedes-Benz is over 625k units

in 2014, overtaking BMW, Peugeot, Citroën

and Skoda.

COMBINED FINANCIALS (2015)

COMBINED ENTITY’S BRANDS

Top 3 global player in terms of revenue


1. Market Overview

2. Daimler Overview

3. Audi Overview

4. Valuation

4.1 Comparable Companies Analysis

4.2 Precedent Transactions Analysis

4.3 Discounted Cash Flow

4.4 Summary


6. Transaction

7. Appendix

Agenda


USDbn Market

Cap

Net

Debt

EV/EBIT P/E EV/Sales EBIT margin

Company 2015A 2016E 2017E 2015A 2016E 2017E 2015A 2016E 2017E 2015A 2016E 2017E

Europe

Daimler 74.0 -25.4 4.8x 3.7x 3.5x 9.9x 7.9x 7.6x 0.4x 0.3x 0.3x 8.5% 8.6% 8.8%

BMW 55.8 41.3 10.7x 9.5x 9.5x 10.1x 7.9x 8.1x 1.1x 1.0x 1.0x 10.4% 10.4% 10.1%

Peugeot 12.1 -4.2 5.5x 2.9x 2.7x 16.8x 7.0x 6.6x 0.2x 0.1x 0.1x 3.6% 5.0% 5.3%

Renault 23.2 -4.0 10.7x 6.1x 5.5x 8.9x 6.2x 5.4x 0.5x 0.4x 0.3x 4.9% 6.1% 6.2%

Volkswagen 66.7 -25.8 N/A 2.9x 2.5x N/A 7.3x 6.2x 0.2x 0.2x 0.2x (1.9%) 5.7% 6.5% USA

Ford 47.5 -12.7 5.7x 5.3x 5.5x 7.4x 6.6x 7.1x 0.3x 0.3x 0.3x 5.1% 4.8% 4.7%

GM 50.5 -11.6 8.1x 3.4x 3.8x 6.6x 5.5x 5.8x 0.3x 0.3x 0.3x 3.2% 7.4% 6.8% Japan

Honda 52.0 48.8 18.8x 14.1x 13.5x 13.8x 11.2x 10.5x 0.9x 0.8x 0.7x 5.0% 5.4% 5.4%

Mazda 9.4 0.2 7.9x 6.9x 6.3x 9.2x 9.9x 8.2x 0.5x 0.3x 0.3x 6.7% 4.8% 5.1%

Nissan 40.4 -13.4 7.0x 5.1x 4.6x 11.2x 7.9x 7.0x 0.4x 0.3x 0.3x 5.2% 6.1% 6.5%

Toyota 188.8 114.0 14.9x 17.4x 15.9x 12.2x 11.5x 10.5x 1.5x 1.3x 1.2x 10.1% 7.2% 7.7%

Suzuki 16.7 -2.1 9.3x 8.2x 7.1x 20.9x 12.7x 13.7x 0.6x 0.5x 0.5x 6.0% 6.6% 7.2%

Summary

1st quartile 6.4x 3.4x 3.4x 9.1x 6.6x 6.2x 0.3x 0.2x 0.2x 4.6x 5.3x 5.4x

Average 9.5x 6.8x 6.4x 11.5x 8.2x 7.7x 0.6x 0.5x 0.4x 5.6x 6.5x 6.7x

Median 8.1x 5.6x 5.3x 10.1x 7.6x 7.1x 0.5x 0.3x 0.3x 5.1x 6.1x 6.5x

3rd quartile 11.0x 8.4x 7.7x 13.0x 9.2x 8.1x 0.7x 0.6x 0.5x 7.1x 7.2x 7.0x

Audi AG 3.0x 6.9x 0.2x 8.1%

Discount to peers 62.8% 31.1% 47.0% N/A

Implied Equity Value

(USDbn, median-based)57.4 45.9 46.2 48.0 33.3 33.1 44.6 35.1 35.8

ValuationComparable Companies Analysis

Source: Bloomberg, as of 16.11.2016

Audi seems to be trading at a significant discount to its peers. Due to low trading volume we assume that the share price of Audi is not fully reliable.

Furthermore Audi is not covered by analysts’ and hence forward looking multiples are unavailable. Implied valuation is based on our forecasts.

Significant potential, enormous value yet to be realised


ValuationPrecedent Transaction Analysis

Source: Zephyr, Bloomberg, Thomson Reuters

Transaction Date Target Name Acquirer Name EV/EBIT EV/Sales Deal Value (USDbn)

23/07/2015 Ferrari SpA Ferrari NV 29.6x 3.9x 10.0

13/11/1998 Chrysler Daimler 9.9x 0.9x 38.4

18/04/2012 Ducati Lamborghini 20.8x 2.2x 1.1

Summary

Min 9.9x 0.9x

Median 20.8x 2.2x

Max 29.6x 3.9x

Implied Equity Value

(USDbn, median-based)124.0 154.5

Limitations in the size of accurately representative transactions under mirrored circumstances significantly affected the strength of the precedent transaction methodology.

In an effort to preserve quality in our valuation, a sample of 3 transactions has been chosen.

TRANSACTIONS OVERVIEW

• Ferrari N.V. (NYSE:RACE) acquired 100% controlling interest in a luxury carmaker Ferrari S.p.A. from American-Italian car manufacturer, Fiat-Chrysler

Automobiles (NYSE:FCA) as part of broad “restructuring” plan in October 2015. The transaction included a 90% stake attributed to Fiat S.p.A. and a 10%

minority stake in ownership by Piero Ferrari, son of Founder Enzo Ferrari.

• Daimler AG completed the merger of Chrysler Corporation in an all stock transaction framing the creation of the DaimlerChrylser group in May 1998.

The acquisition saw the target valued at $38.4bn, excluding any debt assumed. The new entity was quickly considered the largest global car

manufacturer at the time.

• Audi announced the acquisition of Ducati in July 2012, through its wholly owned high performance automobile subsidiary, Lamborghini S.p.A. At $1.1bn

the acquisition represented the next stage of the globalisation process the company was undergoing, for which Audi believed it stood the best suited

partner to facilitate the growth.


USDbn 2016E 2017E 2018E 2019E 2020E

Revenue $69.4 $73.7 $78.2 $83.1 $88.2

COGS (% of Revenue) 80.5% 80.5% 80.5% 80.5% 80.5%

Gross profit 13.5 14.3 15.2 16.2 17.2

SG&A (% of Revenue) 11.0% 11.0% 11.0% 11.0% 11.0%

D&A (% of Revenue) 4.6% 4.6% 4.6% 4.6% 4.6%

Operating Income 5.7 6.0 6.4 6.8 7.2

Less Taxes 1.4 1.5 1.6 1.7 1.8

Plus D&A 3.2 3.4 3.6 3.8 4.0

Less NWC 0.8 0.7 0.8 0.8 0.9

Less CAPEX 1.0 1.1 1.1 1.2 1.3

FCFF 5.6 6.0 6.4 6.8 7.2

PV of FCFF $5.4 $5.5 $5.4 $5.4 $5.4

Implied Price Share Sensitivity

Discount Rate

$1,623.97 5.8% 6.3% 6.8% 7.3% 7.8%

Term

inal EB

IT

Mu

ltip

le

4.5 x $1,548 $1,527 $1,508 $1,487 $1,468

5.0 x $1,611 $1,588 $1,568 $1,546 $1,525

5.5 x $1,674 $1,650 $1,629 $1,604 $1,582

6.0 x $1,737 $1,712 $1,689 $1,663 $1,640

6.5 x $1,800 $1,773 $1,749 $1,722 $1,697

DCF Assumptions & Output

Cost of Equity 6.8%

Cost of Debt 1.0%

Tax Rate 25.0%

WACC: 6.8%

Terminal EBIT

Multiple:5.5x

Enterprise Value: $55,611

Net Debt: -$14,424

Implied Share Price: $1,628.71

• In the last 5 years revenues in automotive had a CAGR of 14.8%. We have

assumed growth of 6.2% CAGR in the next 5 years, taking historical growth

as weighted.

• 6.76% WACC assumed, which is lower than 8.00% of industry. European

Corporate Bonds continue to hit record lows. Corporates with similar scope

and credit rating (i.e. Henkel and Sanofi) sell at near zero levels.

• Consideration of low trading volume - given the free float of only 0.4% of

total shares outstanding – taken into account.

• Terminal EBIT Multiple assumed to be in line with peers valuation at 5.5x

2016E.

• According to forward-guidance we maintain R&D as % of revenue at 7.3%

based on historical levels.

• We see scope for Accounts Receivable to fall within combined entity but

have maintained at 6.9% for conservatism.

• We see a continued uptick in CAPEX at 1.5% of revenue due to required

capital investment in forward developments.

• Unlevered Beta at 0.51 based on historical regression analysis.

• Risk Free rate at 2.17%.

ValuationDiscounted Cash Flow Analysis

Source: Bloomberg, Thomson Reuters, Audi


46

33

63

67

72

62

77

171

0 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 160 170 180

EV/EBIT

P/E

DCF

EV/EBIT

22

ValuationSummary

Using the discounted cash flow methodology we calculated a range of scenarios and found a fair value of between $33bn and $171bn. This valuation is

corroborated by multiples drawn from comparable companies.

In our opinion DCF and Comparable Companies Analysis are the most relevant for this transaction. Based on this assumption we weighted of valuation

methodologies as follows: DCF (50%), P/E (25%), EV/EBIT (25%) (Comparable Companies Analysis). Based on this assumption we concluded that a valuation

range of between $56.0bn to $66.0bn is appropriate.

Our valuation puts a premium of between 98% to 133% over current market cap of $28.3bn. This is caused by the fact that 99.6% of Audi’s shares are

owned by Volkswagen, hence trading volume is extremely low. That limits efficiency of the market’s price discovery mechanisms.

Precedent Transaction Analysis

Comparable Companies Analysis

Valu

ati

on

ran

ge


1. Market Overview

2. Daimler Overview

3. Audi Overview

4. Valuation


5.1 Transaction Rationale - Strategy

5.2 Transaction Rationale - Synergies

6. Transaction

7. Appendix

Agenda


Investment HighlightsTransaction Rationale - Strategy

22

Combined Strategy

Cost Synergies

Brand and Values

• To maintain strategic goals to stay ahead of current market trends, we have protected the R&D budget.

• Software Economies-of-Scale, greater availability of data across the partnership.

• We estimate a conservative 0.25% - 0.50% cost savings on SG&A at €550m - €1.1bn.

• Lower tax charges due to higher depreciation.

Revenue

Synergies

• Combine strategic efforts to tackle product modularisation. This will achieve greater product customisation but reduce

product commonality. Based on consumer trend reports, this will be advantageous to the combined company.

• Combined Marketing strength to take advantage of rapidly growing demand in Emerging Markets.

• Integrated customer networks open opportunities to enhance sales across several segments.

• Brand Appeal: Continue roadmap of highly innovative automobiles i.e. Audi Tron.

• Company value alignment creates greater shared investor satisfaction, further amplifying overall value creation.

DAIMLER AUDI

• One of the world’s most successful automotive companies

• 2nd largest truck manufacturer in the world

• Group sold around 2.9 million vehicles last year

• Strong holding in Emerging Markets

• Well established luxury brand through Mercedes with several other

world renowned subsidiaries

• Leading global premium automobile manufacturer

• Group sold 1.8 million vehicles last year

• Extensive developments in autonomous & electric cars

• Lamborghini achieved historic 3,000 supercars sold in one year

We want to encompass as much of the future Value Chain as possible


Investment HighlightsTransaction Rationale - Strategy

22

1Shifts in Consumer Demand

Future growth: Emerging Markets

Product Modularisation: greater customisation and reduced product commonality. Seamless car-buying experience.

2Regulatory Requirements

Post-emissions scandal, combined with momentum from Paris accord and CAFE regulation in United States, greater

expenditure required for compliance including Backup Cameras, Blind-sport warnings and automatic pre-collision braking. By2025, 60mpg is a requirement.

3Technology

Increasing Availability of Data: DEMAND SIDE Consumers have greater bargaining power. SUPPLY: connected cars.

Sharing of best practises: Electronic Systems represent 90% of new automobile innovation.ENERGY OF THE FUTURE: Wireless Charging, Autonomous Logistics, Audi’s HERE pioneering Virtual Mapping.

4Shifting Revenue Structure

Sharing Economy impact on transportation machines.

Post-sale service, add-ons: including OTA (over-the-air) software updates and further consumer tie-ins.

5Value Chain (Increased non-traditional suppliers)

Electronics and Software presents 35% of cost. Electronic systems 90% of automotive innovation.

Value from Big Data including on-demand mobility services $1.5t dollar future industry.

6Greater Collaboration (shared risk and return)

Continued success in motorsport, luxury and high-performance brands AMG and Quattro.

Ability to support a larger array of engine technologies: electric, hybrid, plug-in, battery and hydrogen.


1. Market Overview

2. Daimler Overview

3. Audi Overview

4. Valuation


6. Transaction

6.1 Recommendation

6.2 Proposed Structure and Financing

7. Appendix

Agenda


TransactionRecommendation

Our Recommendation

Emissions Scandal gives VW headache

• US judge approved $15bn settlement for US consumers.

• VW faces ongoing court cases regarding settlements

for investors and emission regulators.

• Total settlement from the emissions scandal will exceed the

€18.2bn VW has set aside to cover the costs of the scandal.

VW has incentive to sell stake in Audi

• Given our evaluation of VW’s business, we consider it

unfeasible for VW to tender Audi wholesale to Daimler.

• Given the ongoing financial distress of the emissions

scandal and changing automotive market, we see this as

a good opportunity to create a long-term partnership.

• We are approaching VW with a 49.9% equity stake bid for Audi, with Daimler seeking joint operational

control of the firm.

• We recommend Daimler acquire Audi with an all-cash offer, supported by syndicated loan facilities.


TransactionProposed Structure and Financing

Overview:

Pros

Valuation

• Taking all valuation methods into account we see consider a range of $56.0bn – $66.0bn for Audi’s business.

• We recommend to offer $60bn for 100% of Audi’s equity. Therefore equity deal value would be $30bn.

Transaction structure

• Audi’s shares are currently trading at €618.1 (November 17th, 2016).

• Daimler currently has a Debt-to-Equity ratio of -0.43x, with €19bn of cash and short term investments, which

is currently in line with the industry average and opens the possibility of taking on additional debt.

Cons

• Partnership Offer: increases the likelihood of Audi’s parent company (99.6% institutional ownership) to accept

the offer.

• Debt/Cash split: We propose to finance it with 66.6% debt and 33.3% cash on hand.

• Borrowing terms: Considering Daimler’s existing rating of A- and Audi’s rating also of A - we see extensive

opportunity to receive favourable interest rates.

• We recommend Daimler acquire Audi with an all-cash offer, supported by syndicated loan facilities.

• Given our evaluation of Volkswagen’s business and of the considerable contribution Audi makes to the top-

line, we consider it unfeasible and untenable for VW to tender Audi wholesale to Daimler.

• Consequently we are approaching VW with a 49.9% equity stake bid for Audi, with Daimler seeking joint

operational control of the firm. We see this as an opportunity to create a long-term partnership for mutual

benefit.

• We see key areas to leverage our existing strengths to bolster the firm going forwards.

• The strategy and vision these firms share would enable a significant amplification in shared best practices and

technologies. This will lead to a paradigm shift in the evolution of the transportation industry.

• Operational control: At 49.9% we wish to form a new joint supervisory board with equally allocated seats from

both companies. VW will still continue to hold a majority stake in Audi as a subsidiary, which does not defer

from outstanding corporate forward guidance.


Contact Details

Igor [email protected]

7543 581 497

Adrian [email protected]

7783 007 707

Max [email protected]

7896 133 874

Kitan [email protected]

7450 031 428

John [email protected]

7903 159 808

30 St Mary Ave

London

EC3A 8EP

[email protected]

7564 235 754


1. Market Overview

2. Daimler Overview

3. Audi Overview

4. Valuation


6. Transaction

7. Appendix

Agenda


AppendixShare Price Performance

60%

70%

80%

90%

100%

110%

11.2015 01.2016 03.2016 05.2016 07.2016 09.2016

Daimler Audi DAX

Source: Bloomberg


AppendixDetailed Financial Information - Daimler

EURbn 2013 2014 2015

Revenue 118.0 129.9 149.5

Gross Profit 25.1 28.2 31.8

EBITDA 11.7 14.0 17.6

EBIT 7.8 9.4 12.7

Net Income 6.8 7.0 8.7

Cash from Operations 3.3 -1.3 0.2

Cash from Investing -6.8 -2.7 -9.7

Cash from Financing 3.9 2.3 9.6

Net Cash Flow 0.1 -1.4 0.3

CapEx 5.0 4.8 5.1

D&A 3.9 4.6 4.9

Cash & Equivalents 18 16 19

Inventories 17 20 23

Total Current Assets 70 77 91

Total Assets 168 190 217

Total Current Liabilities 59 67 77

Total Liabilities 125 145 163

Total Equity 43 45 55

Total Debt 60 70 83

EURbn 2013 2014 2015

Revenue Growth 3.2% 10.1% 15.1%

EBIT Growth -3.3% 20.1% 35.7%

Quick ratio 0.83 0.78 0.82

Current ratio 1.19 1.15 1.19

ROA 4.1% 3.9% 4.1%

EBITDA Margin 10.3% 11.1% 12.1%

EBIT Margin 6.6% 7.2% 8.5%

Net Debt to EBITDA -1.5x -1.5x -1.3x

Net Debt to EBIT -2.4x -2.3x -1.8x

EBITDA to Interest Expense 13.8x 20.1x 30.1x

EBIT to Interest Expense 8.8x 13.1x 21.2x

Days Sales Outstanding 93.3 93.0 97.2

Days Inventory 68.9 68.6 69.2

AP Turnover Days 35.4 33.4 31.4

Cash Conversion Cycle 126.9 128.2 135.0

ROE 17.0% 16.1% 17.3%

Net Income Margin 4.2% 5.9% 5.8%

Asset Turnover 0.7x 0.7x 0.7x

Equity Multiplier 3.9x 4.3x 4.0x

Source: Bloomberg, Thomson Reuters, Daimler


AppendixDetailed Financial Information - Audi

EURbn 2013 2014 2015

Revenue 49.9 53.8 58.4

Gross Profit 9.2 9.4 11.4

EBITDA 7.1 7.6 7.4

EBIT 5.0 5.2 4.8

Net Income 4.0 4.4 4.2

Cash from Operations 6.8 7.4 7.2

Cash from Investing -2.7 -8.9 -2.2

Cash from Financing -1.8 -1.3 -1.5

Net Cash Flow 2.3 -2.9 3.5

CapEx 3.6 4.3 4.8

D&A 2.0 2.4 2.6

Cash & Equivalents 15 15 17

Inventories 4 5 6

Total Current Assets 25 28 31

Total Assets 45 51 57

Total Current Liabilities 16 19 22

Total Liabilities 27 32 35

Total Equity 18 19 22

Total Debt 1 2 2

EURbn 2013 2014 2015

Revenue Growth 2.3% 7.8% 8.6%

EBIT Growth -6.2% 2.4% -7.6%

Quick ratio 1.15 0.98 0.99

Current ratio 1.54 1.51 1.43

ROA 9.3% 9.1% 7.8%

EBITDA Margin 14.2% 14.1% 12.7%

EBIT Margin 10.1% 9.6% 8.1%

Net Debt to EBITDA -2.0x -1.7x -2.1x

Net Debt to EBIT -2.8x -2.5x -3.2x

EBITDA to Interest Expense 118.4x 130.7x 119.7x

EBIT to Interest Expense 83.8x 88.8x 76.7x

Days Sales Outstanding 19.9 23.2 24.2

Days Inventory 39.6 39.3 44.2

AP Turnover Days 42.1 44.6 49.2

Cash Conversion Cycle 17.3 17.9 19.1

ROE 23.9% 23.6% 21.0%

Net Income Margin 7.9% 8.1% 7.2%

Asset Turnover 1.2x 1.1x 1.1x

Equity Multiplier 2.4x 2.6x 2.6x

Source: Bloomberg, Thomson Reuters, Audi

imperial capital - daimler - final

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