Daimler Hands Chrysler to Cerberus
Posted: 14 May 2007 12:58Daimler Hands Chrysler to Cerberus, Ends Nine-Year Investment
By Jeremy van Loon and Jeff Bennett
May 14 (Bloomberg) -- DaimlerChrysler AG ended a nine-year investment in money-losing Chrysler, handing control of the carmaker to private-equity firm Cerberus Capital Management LP and getting out from under $19 billion of retirement benefits.
Cerberus will put up $7.4 billion with most of the money invested in Chrysler, while DaimlerChrysler will pay out a net amount of $650 million, the Stuttgart, Germany-based company said today in a statement. The agreement gives Cerberus 80.1 percent of Chrysler, while the Germans, who paid $36 billion for the automaker in 1998, will retain 19.9 percent.
Chrysler lost $680 million last year and ceded market share to Toyota Motor Corp. while relying too much on the stagnant North American market. DaimlerChrysler Chief Executive Officer Dieter Zetsche failed to keep the U.S. carmaker profitable after completing a reorganization he began as head of the business.
``The sad and unfortunate reality for the DaimlerChrysler shareholder is how much value destruction there has been over the years,'' said James Bevan, who helps manage about $9 billion as chief investment officer at CCLA Investment Management Ltd.
Shares of DaimlerChrysler rose as much as 4.73 euros, or 7.8 percent, the biggest gain since former CEO Juergen Schrempp announced his departure in July 2005, to 65.34 euros and were up 6.5 percent at 10:47 a.m. in Frankfurt. The stock has surged 31 percent since Feb. 13, the day before Zetsche said ``all options'' were on the table for Chrysler's future.
``We're confident that we've found the solution that will create the greatest overall value, both for Daimler and Chrysler,'' said Zetsche in the statement. The company will change its name to Daimler AG.
Cerberus's Contribution
Of New York-based Cerberus's total contribution, $5 billion will flow into the industrial business of Chrysler, $1.05 billion into Chrysler's financial services business, while Daimler gets the balance. Daimler will end up paying $650 million in the transaction, including granting a loan of $400 million to Chrysler. Existing projects with Mercedes will be continued and a joint council, consisting of management board representatives, will be formed to discuss business projects.
``The amount Daimler is having to pay is much less than feared,'' said Juergen Meyer, who manages about 1.3 billion euros at SEB Asset Management in Frankfurt. ``It's very important to look at the cash flow.''
United Auto Workers President Ron Gettelfinger said in the statement he supports the deal, terming the takeover ``in the best interests of our UAW members, the Chrysler Group and Daimler.'' Pension and health care costs associated with Chrysler will be taken over by the new company.
`Decisive Detail'
``The decisive detail is the fact that health care and pension obligations remain at Chrysler,'' said Uwe Treckmann, Equity Strategist at Dresdner Bank in Frankfurt.
Chrysler sells fewer cars in the U.S. than General Motors Corp., Ford Motor Co. and Toyota, making it the fourth-largest U.S. carmaker. Daimler-Benz AG bought Chrysler Corp. in 1998 for $36 billion in what it billed as a ``merger of equals.''
Chrysler since 1998 has posted annual profits of as much as $5 billion and losses almost as large, increasingly becoming the target of investors' ire. Its latest crisis marked a third descent into losses since Lee Iacocca saved the automaker from bankruptcy 25 years ago.
Chrysler Corp. was created in crisis. It was formed in 1925 by former GM executive Walter Chrysler, who five years earlier had taken over Maxwell Motor Co. at the request of creditors and restored profit. He had been tapped to rescue Maxwell after leaving GM in a dispute with Chairman William Durant.
No. 27
Early on, Chrysler was the 27th-largest car company in the U.S. By 1929, it had cemented its position as third biggest, behind GM and Ford Motor Co.
For the past three decades, Chrysler has veered from crisis to success, with periodic boardroom drama. The automaker almost went bankrupt in 1980, after fuel shortages and rising gasoline prices choked sales of its big, rear-wheel-drive cars.
President Jimmy Carter signed a $1.5 billion federal loan guarantee to keep the company afloat. Iacocca, who joined Chrysler as chairman after being fired at Ford by Henry Ford II, became a national celebrity with his advertising challenge: ``If you can find a better car, buy it.''
Cerberus may have established itself as the front-runner by hiring former Chrysler Chief Operating Officer Wolfgang Bernhard as an adviser, Canadian Auto Workers union President Buzz Hargrove said yesterday. Bernhard, who left in 2004 after four years as COO, has a strong personal relationship with Zetsche, Hargrove said.
GMAC Investment
Last year, Cerberus led a group of investors that bought a 51 percent stake in finance company GMAC from parent GM, the world's largest maker. Detroit-based GMAC makes loans for purchases of homes and cars.
The firm was also part of a group that offered to invest $3.4 billion in bankrupt auto-parts maker Delphi Corp. Without giving a reason, Delphi said last month it expects Cerberus to back out, and Cerberus has so far declined to comment.
Cerberus and other private-equity firms are interested in the Auburn Hills, Michigan-based automaker because they expect to profit on their investment by reducing wages and paring other costs such as pension expenses. Cerberus's auto division is run by former Ford executive David Thursfield, 61. The firm's acquisitions in the car industry include Peguform GmbH, a German manufacturer of plastic parts for vehicle interiors, as well as a controlling stake in GM's financing unit.
Cerberus Roots
Stephen Feinberg, a trader at Drexel Burnham Lambert Inc. in the 1980s, started Cerberus with $10 million in 1992. He's since built it into a $24 billion investment firm that also owns Albertson's LLC supermarkets and IAP Worldwide Services Inc., one of the largest providers of logistics support to the U.S. Army in Iraq.
Daimler tomorrow may say Chrysler lost 908 million euros in the first quarter on the cost of job cuts and closing a factory, with group net income reaching 1.26 billion euros, according to the median of nine analysts surveyed by Bloomberg News. Year- earlier figures are not available because of an accounting change.
Net income will fall by between 3 billion euros and 4 billion euros this year. The 19.9 percent stake in Chrysler Holding LLC will be included at equity in the van, bus and other segment for reporting purposes.
Chrysler CEO Tom LaSorda already is in the midst of a restructuring designed to reduce costs, including shedding 13,000 jobs and closing a Delaware manufacturing plant by 2010.
Magna International
Canadian auto-parts supplier Magna International Inc. and a partnership with New York buyout firms Blackstone Group LP and Centerbridge Capital Partners LP have also been bidding for Chrysler. Magna announced May 10 that Russian billionaire Oleg Deripaska will buy a stake in the Canadian company, adding $1.54 billion in cash for a possible purchase.
With contract talks starting in July with the UAW, DaimlerChrysler's decision to sell Chrysler is a central element in its bargaining strategy with the union, said Cole of the Center for Automotive Research.
Management may be negotiating with private-equity investors to give UAW leaders ammunition to convince rank-and-file workers of the need for concessions, he said. Meanwhile, other potential buyers including Chery Automobile Co. Ltd. of China or Renault SA and Peugeot SA of France are biding their time, Cole added.
``They're waiting for the private equity companies to do some of the cleanup work to make Chrysler an attractive deal, where right now it probably isn't,'' Cole said.
By Jeremy van Loon and Jeff Bennett
May 14 (Bloomberg) -- DaimlerChrysler AG ended a nine-year investment in money-losing Chrysler, handing control of the carmaker to private-equity firm Cerberus Capital Management LP and getting out from under $19 billion of retirement benefits.
Cerberus will put up $7.4 billion with most of the money invested in Chrysler, while DaimlerChrysler will pay out a net amount of $650 million, the Stuttgart, Germany-based company said today in a statement. The agreement gives Cerberus 80.1 percent of Chrysler, while the Germans, who paid $36 billion for the automaker in 1998, will retain 19.9 percent.
Chrysler lost $680 million last year and ceded market share to Toyota Motor Corp. while relying too much on the stagnant North American market. DaimlerChrysler Chief Executive Officer Dieter Zetsche failed to keep the U.S. carmaker profitable after completing a reorganization he began as head of the business.
``The sad and unfortunate reality for the DaimlerChrysler shareholder is how much value destruction there has been over the years,'' said James Bevan, who helps manage about $9 billion as chief investment officer at CCLA Investment Management Ltd.
Shares of DaimlerChrysler rose as much as 4.73 euros, or 7.8 percent, the biggest gain since former CEO Juergen Schrempp announced his departure in July 2005, to 65.34 euros and were up 6.5 percent at 10:47 a.m. in Frankfurt. The stock has surged 31 percent since Feb. 13, the day before Zetsche said ``all options'' were on the table for Chrysler's future.
``We're confident that we've found the solution that will create the greatest overall value, both for Daimler and Chrysler,'' said Zetsche in the statement. The company will change its name to Daimler AG.
Cerberus's Contribution
Of New York-based Cerberus's total contribution, $5 billion will flow into the industrial business of Chrysler, $1.05 billion into Chrysler's financial services business, while Daimler gets the balance. Daimler will end up paying $650 million in the transaction, including granting a loan of $400 million to Chrysler. Existing projects with Mercedes will be continued and a joint council, consisting of management board representatives, will be formed to discuss business projects.
``The amount Daimler is having to pay is much less than feared,'' said Juergen Meyer, who manages about 1.3 billion euros at SEB Asset Management in Frankfurt. ``It's very important to look at the cash flow.''
United Auto Workers President Ron Gettelfinger said in the statement he supports the deal, terming the takeover ``in the best interests of our UAW members, the Chrysler Group and Daimler.'' Pension and health care costs associated with Chrysler will be taken over by the new company.
`Decisive Detail'
``The decisive detail is the fact that health care and pension obligations remain at Chrysler,'' said Uwe Treckmann, Equity Strategist at Dresdner Bank in Frankfurt.
Chrysler sells fewer cars in the U.S. than General Motors Corp., Ford Motor Co. and Toyota, making it the fourth-largest U.S. carmaker. Daimler-Benz AG bought Chrysler Corp. in 1998 for $36 billion in what it billed as a ``merger of equals.''
Chrysler since 1998 has posted annual profits of as much as $5 billion and losses almost as large, increasingly becoming the target of investors' ire. Its latest crisis marked a third descent into losses since Lee Iacocca saved the automaker from bankruptcy 25 years ago.
Chrysler Corp. was created in crisis. It was formed in 1925 by former GM executive Walter Chrysler, who five years earlier had taken over Maxwell Motor Co. at the request of creditors and restored profit. He had been tapped to rescue Maxwell after leaving GM in a dispute with Chairman William Durant.
No. 27
Early on, Chrysler was the 27th-largest car company in the U.S. By 1929, it had cemented its position as third biggest, behind GM and Ford Motor Co.
For the past three decades, Chrysler has veered from crisis to success, with periodic boardroom drama. The automaker almost went bankrupt in 1980, after fuel shortages and rising gasoline prices choked sales of its big, rear-wheel-drive cars.
President Jimmy Carter signed a $1.5 billion federal loan guarantee to keep the company afloat. Iacocca, who joined Chrysler as chairman after being fired at Ford by Henry Ford II, became a national celebrity with his advertising challenge: ``If you can find a better car, buy it.''
Cerberus may have established itself as the front-runner by hiring former Chrysler Chief Operating Officer Wolfgang Bernhard as an adviser, Canadian Auto Workers union President Buzz Hargrove said yesterday. Bernhard, who left in 2004 after four years as COO, has a strong personal relationship with Zetsche, Hargrove said.
GMAC Investment
Last year, Cerberus led a group of investors that bought a 51 percent stake in finance company GMAC from parent GM, the world's largest maker. Detroit-based GMAC makes loans for purchases of homes and cars.
The firm was also part of a group that offered to invest $3.4 billion in bankrupt auto-parts maker Delphi Corp. Without giving a reason, Delphi said last month it expects Cerberus to back out, and Cerberus has so far declined to comment.
Cerberus and other private-equity firms are interested in the Auburn Hills, Michigan-based automaker because they expect to profit on their investment by reducing wages and paring other costs such as pension expenses. Cerberus's auto division is run by former Ford executive David Thursfield, 61. The firm's acquisitions in the car industry include Peguform GmbH, a German manufacturer of plastic parts for vehicle interiors, as well as a controlling stake in GM's financing unit.
Cerberus Roots
Stephen Feinberg, a trader at Drexel Burnham Lambert Inc. in the 1980s, started Cerberus with $10 million in 1992. He's since built it into a $24 billion investment firm that also owns Albertson's LLC supermarkets and IAP Worldwide Services Inc., one of the largest providers of logistics support to the U.S. Army in Iraq.
Daimler tomorrow may say Chrysler lost 908 million euros in the first quarter on the cost of job cuts and closing a factory, with group net income reaching 1.26 billion euros, according to the median of nine analysts surveyed by Bloomberg News. Year- earlier figures are not available because of an accounting change.
Net income will fall by between 3 billion euros and 4 billion euros this year. The 19.9 percent stake in Chrysler Holding LLC will be included at equity in the van, bus and other segment for reporting purposes.
Chrysler CEO Tom LaSorda already is in the midst of a restructuring designed to reduce costs, including shedding 13,000 jobs and closing a Delaware manufacturing plant by 2010.
Magna International
Canadian auto-parts supplier Magna International Inc. and a partnership with New York buyout firms Blackstone Group LP and Centerbridge Capital Partners LP have also been bidding for Chrysler. Magna announced May 10 that Russian billionaire Oleg Deripaska will buy a stake in the Canadian company, adding $1.54 billion in cash for a possible purchase.
With contract talks starting in July with the UAW, DaimlerChrysler's decision to sell Chrysler is a central element in its bargaining strategy with the union, said Cole of the Center for Automotive Research.
Management may be negotiating with private-equity investors to give UAW leaders ammunition to convince rank-and-file workers of the need for concessions, he said. Meanwhile, other potential buyers including Chery Automobile Co. Ltd. of China or Renault SA and Peugeot SA of France are biding their time, Cole added.
``They're waiting for the private equity companies to do some of the cleanup work to make Chrysler an attractive deal, where right now it probably isn't,'' Cole said.
Bob are you there my friend? We took the R/T out the other day and had a BLAST! Too bad it was cut short by an injury,(not ours or the cars). Bob is gonna be hot when they cancel the Challenger! Maybe we can all hot rod the Sprinter! 
Spoke with my brother who is a banker. He said Cerebrus will make it all better!
This is really bad man. I wish the assembly/plant workers lots of luck. Hope they have their jobs and a decent future. 