Chrysler group to be sold to Cerberus

[voivod]

Chrysler group to be sold to Cerberus
May 14, 2007

FRANKFURT, Germany --DaimlerChrysler AG will sell 80.1 percent of its money-losing Chrysler Group to private equity firm Cerberus Capital Management LP for $7.4 billion, the company announced Monday, undoing a 1998 merger aimed at creating a global auto giant.

The German-American automaker said in a statement that an affiliate of Cerberus will hold the majority stake in a new Chrysler Holding LLC while DaimlerChrysler will keep a 19.9 percent stake.

It said that Chrysler would keep its heavy obligations for pensions and health care costs, a key issue complicating DaimlerChrysler's effort to sell the division.

The first thing to go will be the company name, with Daimler AG to replace DaimlerChrysler. A vote by shareholders to approve the change must be held first, likely this fall, the company said.

"We're confident that we've found the solution that will create the greatest overall value -- both for Daimler and Chrysler," said DaimlerChrysler Chief Executive Dieter Zetsche, who oversaw Chrysler before becoming CEO in 2006. "With this transaction, we have created the right conditions for a new start for Chrysler and Daimler."

He added that the two companies would still work together, particularly on existing conventional and alternative drive systems, purchasing, sales and financial services outside North America.

"We very much look forward to our continued cooperation as business partners, as we want to continue to reap the mutual benefits of working together," Zetsche said. "That's one of the reasons why we're retaining a 19.9 percent equity position in Chrysler."

DaimlerChrysler said the deal is likely to be complete by the third quarter and that it would reduce its overall profit by some $4.05 billion to $5.39 billion for 2007.

The prospect of a sale to a private equity firm had worried unions in the United States because of private equity firms' tendency to slash costs and jobs. But United Auto Workers President Ron Gettelfinger called it the best choice.

"The transaction with Cerberus is in the best interests of our UAW members, the Chrysler Group and Daimler. We are pleased that this decision has been made," he said.

Cerberus Chairman John W. Snow said the deal was a sign of faith in Chrysler, an iconic American brand and third-largest U.S. carmaker behind General Motors Corp. and Ford Motor Co.

"We welcome Chrysler into the Cerberus family of companies and believe Cerberus will be a good home for Chrysler," he said in a statement. "Most importantly, we believe in Chrysler."

Shareholders in Europe were excited about the news, sending the company's stock up more than 7 percent to $87.66.

The sale comes after nearly three months of study and negotiations by several companies interested in buying DaimlerChrysler's troubled U.S. operations.

The deal is a stunning reversal of the 1998 $36 billion merger of Chrysler with Daimler-Benz AG that tried to set the mold for global automotive manufacturers. Despite the pledges and promises of synergies and economies of scale, the two companies struggled to integrate.

As the company's stock price continued to disappoint, Zetsche announced Feb. 14 that all options were open for Chrysler, which lost $1.5 billion last year and is undergoing a restructuring plan that will eventually shed 13,000 jobs.

Last year, GM sold a majority stake in its General Motors Acceptance Corp. financing arm to a consortium of investors led by Cerberus for about $14 billion. Analysts had said buying a big stake in Chrysler would let Cerberus combine GMAC operations with Chrysler Financial.

In December, Cerberus was part of a consortium of investors that said it would invest $3.4 billion in the struggling auto parts giant Delphi Corp. in exchange for new shares of Delphi stock as it emerged from Chapter 11 bankruptcy protection.

On its Web site, Cerberus said the companies in which it has a controlling or significant minority stakes generate over $60 billion in annual revenues. Its worldwide investments include businesses involved in aerospace and military, autos, building products, retailing, financial services, health care, distribution, paper and packaging, real estate, telecommunications, transportation and travel.

Billionaire investor Kirk Kerkorian, who tried to take control of Chrysler in the 1990s, also has said he would make a bid, but it was apparently spurned.

[ZeoBandit]

Good. I wasn't too keen on the idea of GM buying Chrysler.

[fast98dodge]

What a great Birthday present!!! They're gonna be American again!!!

[FORD]

Cerberus??

I've often said that predatory capitalism is "satanic" but to literally name themselves after Satan's dog??



Wonder if these guys are affiliated with The Carlye Group? (corporate acquisitions branch of the Bush Criminal Empire) I see John Snow (ex BCE treasury secretary) is with them......

[JasonG5150]

Cerberus??

I've often said that predatory capitalism is "satanic" but to literally name themselves after Satan's dog??



Wonder if these guys are affiliated with The Carlye Group? (corporate acquisitions branch of the Bush Criminal Empire) I see John Snow (ex BCE treasury secretary) is with them......

lol you turn a story about chrysler into ANOTHER rant about bush, stop bithcing and do something about it, wait you can't

[FORD]

I merely stated the fact that this mysterious company happens to be named after the three-headed dog who guards the gates of Hell.

Funny name for a company, isn't it?

[JasonG5150]

wait a minute, i see you FORD!!

[JasonG5150]

I merely stated the fact that this mysterious company happens to be named after the three-headed dog who guards the gates of Hell.

Funny name for a company, isn't it?

no you didn't you were whining about capitalism and bush

[willy4pres]

I think the Chrysler workers would have been better off if the company was bought by non-Americans.

[FORD]

I think the Chrysler workers would have been better off if the company was bought by non-Americans.

God knows their cars were better under German ownership!

I owned two Chrysler products made in the 80's. I swore I'd never buy another.

[fast98dodge]

To say their cars were better under German ownership I think is incorrect. They were building good vehicles in the early to mid 1990's before the "marriage of equals" occured.

[twonabomber]

I think the Chrysler workers would have been better off if the company was bought by non-Americans.

being my dad was a former AMC employee under Renault and then DCX...he'd say you were wrong.

being privately held Chrysler won't have to live up to the ANALysts' scrutiny any more. it's gonna get interesting.

i'm just glad GM didn't end up with Jeep. and as much as i'd love a Mercedes...they really fucked Chrysler.

[willy4pres]

being my dad was a former AMC employee under Renault and then DCX...he'd say you were wrong.

being privately held Chrysler won't have to live up to the ANALysts' scrutiny any more. it's gonna get interesting.

i'm just glad GM didn't end up with Jeep. and as much as i'd love a Mercedes...they really fucked Chrysler.

Yeah, I have a bunch of friends that work for Chrysler in MO.

Love they guys but they make to much money, have almost zero job skills, and they fuck over their company just because they can (or could, they get layed off all the time, wonder why).

The last persons opinion I ever want when discussing the American auto industry are the workers themselves.

A high school diploma + limited job skills should not = $60,000 + annually, sorry.

[voivod]

Cerberus has profited from its ties to key Republicans, and in one case, a timely $110,000 donation to suspect congressman Jerry Lewis was almost instantly rewarded with the renewal of a controversial $1 billion contract and the firing of US Attorney Carol Lam fired, who was investigating Lewis’ contributors (presumably including Cerebrus). Steven Feinberg himself is a "paper guy," who rose up through the ranks of the buy-and-sell Wall Street crowd.

Cerberus appears to have set itself up as a member of the “pay to play” politically-based contracts game; Dan Quayle is in charge of European operations, and the chair of the company itself is former Republican Treasury secretary John Snow. But that doesn’t mean they’ll hire some ex-Party hack to run Chrysler; we need not fear seeing Randy "Duke" Cunningham or Mark Foley in the President’s chair. The moral concerns we have about Cerebrus (and for that matter the "all that matters is short-term profit" reputation of some private equity firms) do not necessarily affect their ability to run Chrysler, and in any huge company, there can be some highly moral and some highly immoral divisions. A few bad apples doesn’t necessarily poison the entire farm, and it’s a huge farm.

There’s even a lighter side to the political machinations. They might be able to buy Chrysler some military contracts for Jeep and Dodge trucks; and they are putting serious money into the company. What’s more, they are getting Chrysler Financial in the deal, which should make Chrysler profitable without slashing.

Tom LaSorda is reportedly to remain CEO, but Wolfgang Bernhard, the slash-and-burn, flashy Mercedes man, will most likely be running the show from behind the scenes. On the lighter side, Bernhard is "a car guy," which might mean more enthusiasm for the company; on the darker side, there is no reason to believe he is steeped in Chrysler history or has any better ability to run a mass-market automaker than DCX did. Though Chrysler might see Firepowers and Tomahawks, it might not see the Reliants and Spirits that sold in huge numbers (or, in modern terms, Corollas and Camrys), and it can’t keep the factories running with exotics.

Also in Cerberus’ stable is David Thursfield, who ran Ford’s highly successful operations outside the Americas before joining Cerebrus in 2004.

Cerebrus does appear to have a record of turning companies around and being in the game for the long run; they’ve sometimes been contrasted to the standard slash-burn-flip private-equity firms. Cerebrus already owns 51% of GMAC Financial Services and is buying out Tower Automotive, a parts supplier; it also owns Guilford Mills, a large American auto-seat supplier in the U.S., and Peguform Group, a German auto-plastic maker.

Chrysler is likely to do much better under Cerebrus than under Daimler. New products should be lighter and cheaper to build without the need to build to Mercedes specifications, and without the need (at least on future vehicles) to use Mercedes components even when they are sorely outclassed by cheaper ones. The horrific German Engineering ads which decimated sales will disappear, and Chrysler will not be publicly criticized and dragged into the dirt by their new owners. The anonymous leaks from Mercedes directors on how terrible Chrysler is (ignoring the fact that Mercedes gets lower quality rankings in just about every survey) will end, and the stigma of owning a Chrysler will fade. We hope, incidentally, that in addition to the destruction of the myriad of DaimlerChrysler signs, that by 2009 we will see the first new Plymouth rolling down the lines.

It’s good to have Chrysler back on American soil. Maybe with all the government connections Cerebrus has, Chrysler can even get a nice fat military contract and start building Army vehicles again. We just hope they never bring up any controversy - that they do what they did in the 1940s, not what Cerebrus did in the 21st Century.

Being an American company again means that if they DO go public again, their stock will be purchased by index funds again, and that’ll be good for an instant boost.

According to a source at Chrysler Group, Tom LaSorda, Dieter Zetsche, and Cerberus managers (including CEO Steve Feinberg) met with senior management last night to clarify the future. The name of the company will be Chrysler Holdings; the Pentastar will be the corporate logo again, saving a considerable glazing fee for the Chrysler Technical Center. Tom LaSorda seemed very excited to be free from Daimler; Dieter on the other hand was bittersweet, saying that his years at Chrysler were the best years of his career and his life. He said he realized that the differences between Mercedes and Chrysler made real integration impossible, and that both had to do what they did best. The two companies will continue to share items like diesel engines, 4×4 components, hybrids and fuel cells, and electronics.

Steve Feinberg called his company a blue-collar capital investment firm that stresses long term growth, calling Chrysler a once in a lifetime opportunity and saying he wanted Cerberus to have the legacy of helping Chrysler to flourish. He did not provide a clear role for Wolfgang Bernhard, who was present, and said he would quickly trade in his Chevy pickup for a Ram. He did not see any vertical integration with Cerberus suppliers. He also noted that naming the company after the dog-guard of Hell was a huge mistake.

[nitefly5150]

I owned an 82 Plymouth that was the worst car I have ever had, by far. Against my better judgement, I bought a 1998 Chrysler Cirrus (around 2000 I guess), and it has been by far the best car I have ever owned. I don't know if its the Daimler influence or not, but I'm planning for my next car to be a Dodge.