Toronto-Dominion Bank made an extra payout of $70 million to the previous owners of Chrysler Financial last quarter under an agreement to raise the price of the deal if the auto lender's assets perform better than expected.
The Toronto banking company said in its quarterly report on Thursday that Cerberus Capital Management LP may be due additional money as it "completes the valuation" of the loans and liabilities it acquired from the hedge fund in the now-$6.4 billion deal.
The payout — though immaterial in size — exacerbates gripes among some analysts that the financial details of the acquisition were vague and confusing. Toronto-Dominion is not saying what the criteria are for determining how much more Cerberus will get nor which assets are subject to price changes.
A spokesman described the payout as a "price adjustment" under Canadian accounting rules and declined to elaborate.
Brad Smith, a managing director with Stonecap Securities Inc., said he had a hard time making financial sense of the agreement when Toronto-Dominion announced it late last year. The contingency payment announced Thursday added confusion.
"The way they disclosed that transaction was un-analyzable in my mind," Smith says. "All of that disclosure is a little bit sour, if you ask me."
Toronto-Dominion said it was only injecting about $900 million of equity into Chrysler Financial in the form of working capital and goodwill, which struck Smith as unorthodox. Its 20% expected returns on the deal were based on that amount of invested capital.
Also, the deal valuation was quirky and the goodwill in the transaction seems to be a moving target.
Toronto-Dominion initially expected about $400 million of goodwill, which represented the difference between the net value of Chrysler's assets and its liabilities. The goodwill at the time the deal closed in April was around $200 million, or half as much as expected; it had increased about $73 million as of the end of October.