Article: Daimler sells Chrysler to private equity

Seth Brundle

from http://business.timesonline.co.uk/tol/business/industry_sectors/engineering/article1786611.ece

Private equity group Cerberus has emerged victorious in fierce three-way battle for control of ailing US car maker

DaimlerChrysler, the German carmaker, has confirmed a deal to sell its ailing US unit to Cerberus, a US private equity firm, in a move that will cost it €500 million to end its unhappy 10-year old trans-Atlantic merger.


The Mercedes-Benz group said that it was selling its 80.1 per cent stake in Chrysler to Cerberus in return for a €5.5 billion (£3.8 billion) capital injection. Cerberus will also take on Chrysler's massive $18 billion pension and healthcare liabilities.


Of the €5.5 billion cash, the rump Daimler company will retain €1 billion, while the rest will be injected into the newly formed Chrysler companies.


But Daimler will have to spend €1.2 billion on its 13,000 job cut and restructuring plan before the deal completes and will have to loan Chrysler another €300 million. As a result it will actually lose €500 million on the deal.

The sale marks the first time that one of the big-three Detroit car makers is not owned by an industrial player. It also marks the conclusion of a fierce three-way battle against Blackstone, the private equity firm, and Magna International, a Canadian car parts maker.


Cerberus, which counts former Ford and Chrysler executives among its operations team, recently acquired GMAC Financial Services, the former General Motors finance unit.


Chrysler lost $1.5 billion in 2006 and is undergoing a recovery plan that will cut 13,000 jobs in Canada and the US and pare back production. Daimler-Chrysler announced in February that it was considering all options for the Chrysler unit, which was taken to mean that it was being put up for sale.


Cerberus helped its chances of winning the auction by hiring Wolfgang Bernhard, the former chief operating officer of Chrysler, to lead its bid. Mr Bernhard held that position from 2001 to 2004, during which time he masterminded Chrysler’s last comeback.

Mr Bernhard is working alongside Robert Rewey, a former marketing executive at Ford Motor, JD Power and Associates, a research firm with extensive knowledge of the car industry, and its senior vice-president, Gary Dilts, the former head of Chrysler’s sales team.


This month, Magna had been viewed as the frontrunner to buy Chrysler because of the close ties between its chairman, Frank Stronach, and Daimler-Chrysler, his perceived determination to be a major player in the industry and his firm’s car industry expertise.


But Mr Stronach appeared to play down his interest last week, saying he would be content for Magna to be one of four or five members of a larger ownership consortium, rather than the driving force. A further question mark emerged over Magna last week as Mr Stronach sold a $1.5 billion stake in the company to Basic Elements, a private Russian conglomerate controlled by Oleg Deripaska, the 39-year-old Russian billionaire with close ties to President Putin.


The link with Mr Deripaska raised concerns that a deal between Magna and Chrysler could face opposition by the United Auto Workers trade union and possibly create regulatory issues.


Like General Motors and Ford, Chrysler has suffered from the rising cost of petrol causing consumers to switch from SUVs and pickup trucks to smaller vehicles.


Toyota, which overtook Ford and Chrysler to become the world’s second-biggest carmaker, last month revealed that it was now the biggest.


Cerberus’s worldwide investments include businesses involved in aerospace and military equipment, cars, building products, retailing, financial services, health care, distribution, paper and packaging, property, telecoms, transport and travel.

unkel

Good bloody riddance. Now can Mercedes start to become Mercedes again please?