Chrysler Sold to Cerebus

[Dragon]

http://money.cnn.com/2007/05/14/news/compa...sion=2007051406

By Chris Isidore, CNNMoney.com senior writer

May 14 2007: 8:28 AM EDT

NEW YORK (CNNMoney.com) -- DaimlerChrysler moved to undo the most expensive and one of the least successful mergers in auto industry history Monday as it agreed to sell its money-losing Chrysler unit for only a fraction of what it paid nine years ago.

DaimlerChrysler (Charts) announced it will sell an 80 percent stake in its U.S. brand for $7.4 billion to Cerberus Capital Management, a private equity investment firm.

chrysler_logo.03.jpg

DaimlerChrysler sells majority stake of its struggling U.S. brand for $7.4 billion to Cerberus Capital, a New York-based private equity group.

Shares of DaimlerChrysler up 3.6 percent in mid-afternoon trading in Frankfurt, although that is off from earlier gains soon after the announcement.

The private equity sector has become a major force in acquisition of publicly owned companies in recent years, often buying troubled operations at a bargain price.

"We are aware that Chrysler faces significant challenges, but we are confident that they can and will be overcome," said a statement from John Snow, the chairman of Cerberus and the U.S. Treasury Secretary from 2003 to 2006. "A private investment firm like Cerberus will provide management with the opportunity to focus on their long-term plans rather than the pressures of short-term earnings expectations."

This is not Cerberus' first entry into the troubled U.S. auto industry. Last year it bought a 51 percent stake in GMAC, the finance unit of General Motors (Charts, Fortune 500), and it is in negotiations to become a major investor in Delphi (Charts, Fortune 500), the world's No. 1 auto parts maker which has been in bankruptcy since October 2005.

The German automaker then known as Daimler-Benz paid $37 billion for the U.S. automaker in 1998, but it soon found itself weighed down by uncompetitive labor costs and losing sales to nimbler Japanese rivals.

Toyota Motor (Charts) passed DaimlerChrysler in U.S. sales for the first time 2006, as GM, Ford Motor (Charts, Fortune 500) and Chrysler all lost money on their North American operations and announced plans to close plants and make deep cuts in staff.

On Feb. 14, as DaimlerChrysler announced it would look at all options for Chrysler, including a possible sale, at the same time it announced plans to cut 13,000 jobs as it closes an assembly line in Delaware and a parts center in Cleveland, while it eliminates shifts at other plants. That same day the company announced that Chrysler losses reached $1.5 billion in 2006, even as DaimlerChrysler made $7.3 billion in the period.

Chrysler attracted interest from a number of other private equity firms, as well as Canadian auto parts marker Magna International (Charts). In addition, financier Kirk Kerkorian, who had been the largest shareholder in Chrysler when it was sold to Daimler-Benz, offered $4.5 billion for Chrysler, proposing to share ownership of the company with its unions and management. But that bid never appeared to be taken seriously by DaimlerChrysler.

Still over the last three months pressure from German shareholders to dump the unit mounted in the face of the prospect for future losses in North America. At the company's annual shareholder meeting in April, major institutional shareholders pushed for a sale.

"We're confident that we've found the solution that will create the greatest overall value -- both for Daimler and Chrysler," said a statement from DaimlerChrysler Chairman Dieter Zetsche. "With this transaction, we have created the right conditions for a new start for Chrysler and Daimler."

The United Auto Workers union, which had previously stated opposition to the sale of Chrysler to a private equity firm, issued a statement Monday backing the deal.

UAW President Ron Gettelfinger said the union leadership "concluded that the transaction with Cerberus is in the best interest of our membership, the Chrysler Group and Daimler. We are satisfied now that the decision has been made so that our membership and management can focus on designing, engineering and manufacturing the finest quality products for the future success of the Chrysler Group."

The newly independent automaker, to be known as Chrysler Holding will begin debt free, as its former German parent, now to be known as Daimler, assumes its debt. Daimler will also retain a 20 percent stake in Chrysler Holding.

But the U.S. automaker, which is projected to not return to profitability until at least 2008, will take with it responsibility for billions in health care coverage promised to union employees, retirees and their families, costs than are adding thousands of dollars to each automobile made in North America.

damn. I was hoping Frank (and Canada) would get'em

[Ravenfreak13]

So...what happens to all of Chrysler's models???

[the_yellow_dart]

http://money.cnn.com/2007/05/14/news/compa...sion=2007051406

damn. I was hoping Frank (and Canada) would get'em

Me too.

[CARBIZ]

GMAC financing at Chrysler!

[Mr.Krinkle]

And so the clean-up can begin.

In the end didnt have to pay much to sell and Daimler still retains 20%.

[Dragon]

GMAC financing at Chrysler!

thats just wrong....wrong I say!

[Ravenfreak13]

Dang...better get to a chrysler dealership before monthly payments go up!

[CSpec]

Wow.. well I'm sure Daimler (what's the new acronym now that there's no C in DCX?) investors are happy.

[Oracle of Delphi]

Oh I dream for the day GM does that to one of its subsidiaries, and no it's not Opel! I can dream can't I?

[aaaantoine]

And thusly, Chrysler is once again an American corporation.

Though the "Big 3" are hardly as big as they were before Diamler-Benz stepped in.

[Intrepidation]

It should just be Chrysler...not Chrysler Holding...that just sounds retarded. Sytill, if this helps teh company turn around than that's for the best. Hopefully the guys at Cerberus push for better interiors and more competitive drivetrains.

[Dragon]

Wow.. well I'm sure Daimler (what's the new acronym now that there's no C in DCX?) investors are happy.

back to DaimlerBenz (DBX?) I'd imagine

[AxelTheRed]

I'm really wondering what's next for Chrysler now. Without Daimler looking over their shoulder 100% of the time, I'd say everyone at Chrysler has a free pass to do whatever the hell they want (they've got Cerebus now, but I'm hoping that since they're not an auto company they won't have the stranglehold on Chrysler that Daimler did). I'm hoping they get going on moving the Chrysler brand upmarket and maybe revive some old names. Ridiculous as it probably sounds to some people, I kind of want to see Plymouth again.

Edited May 14, 2007 by AxelTheRed

[-Camaro-]

Daimler is the worst thing to happen to Chrysler ever. Worse than the crappy cars they built and worse than their image of crap...

[Sixty8panther]

Ridiculous as it probably sounds to some people, I kind of want to see Plymouth again.

It's not ridiculous.

The amazingly succesful PT Cruiser was supposed to be a

Plymouth not a Chrysler... Chrysler needs to bring back

the value brand and stop dicking around with crap like the

Aspen & blasphemy Jeeps like the Compass.

[turbo200]

what does this mean for UAW?

[Dragon]

I'm really wondering what's next for Chrysler now. Without Daimler looking over their shoulder 100% of the time, I'd say everyone at Chrysler has a free pass to do whatever the hell they want (they've got Cerebus now, but I'm hoping that since they're not an auto company they won't have the stranglehold on Chrysler that Daimler did). I'm hoping they get going on moving the Chrysler brand upmarket and maybe revive some old names. Ridiculous as it probably sounds to some people, I kind of want to see Plymouth again.

I doubt it. PE isn't about letting people run wild, cause that usually ends with money being spent liek wild, which PE firms aren't about. Its all about making money to them, and usually, that means cost cutting and lots of it. Since brands = costs, I don't think we'll see any brands come back anytime soon either.

Cerebus might not be an auto company, but don't forget they have an auto guy in Ex-Daimler man Wolfgang Bernhard as a consultant. He'll probably end up being the one Lasorda has to deal with at Cerebus and making most of the decisions.

[Delta Force79]

Thank God this sale hapened...maybe we'll see some decent cars from Chrysler again...because aside from the LX cars, Chrysler died in the 1990's. The main concern that should be addressed right away, is interiors....get some none rubbermaid interiors with some color and style and maybe these cars can be halfway decent instead of looking like cars that should be sold for half their MSRP.

[Brougham-Holiday]

Now if they would bring back Lee Iacocca back....

[NeonLX]

I'm cautiously optimistic. But the big fly in the ointment for me is that Dan Quayle is one of the principals in this company.

Disclaimer: I'm not a democrat or a republican.

[FAPTurbo]

These are the guys that own Air Canada, right?

They're doing a great job there...

[dimitri0917]

Will Daimler take their parts from Chrysler's platforms? (That would be dirrrty on the LX... Can they do that?)

Where will Mitsubishi go for help? Will Cerebus keep friendly with them?

Daimler is smart though... They hadn't strapped any MBs onto Chrysler's platforms, so they werent fully invested... Shrewd!

[regfootball]

ok, who's to say Iacocca won't surface here? Good thing there's no kirk.

secondly, UAW/Gettlefinger, STFU. No one cares. Where will you be in ten years?

clearly this company paid to assume the debt and benefits liabilities, and the brand names. The company (overhead) comes with it for free.

I am guessing we will see Chrysler scale down now. And they should.

Honestly though, they could partner up again with Mitsubishi or Hyundai or whoever and probably set foot in Russia now too.

[CARBIZ]

...that may not be so far fetched now that Frank has suddenly teamed up with Russia. Interesting how he dropped interest in the Chrysler deal to build cars in Russia....hmm?

[Oracle of Delphi]

Maybe they will hire Lutz as the CEO!

Edited May 14, 2007 by Pontiac Custom-S

[gm4life]

Custom we need Lutz at GM.

[ocnblu]

Yeah, Custom. What's wrong wif you?

Is this a step toward weakening the UAW? And if it is, will GM and Ford be able to level their benefits with this "new" Chrysler?

Edited May 15, 2007 by ocnblu

[Chicagoland]

Now have to rename this the "Chysler LLC Forums", and move MB to Euro Cars.

[cletus8269]

It should just be Chrysler...not Chrysler Holding...that just sounds retarded. Sytill, if this helps teh company turn around than that's for the best. Hopefully the guys at Cerberus push for better interiors and more competitive drivetrains.

yeah i can already see that joke. was thinkin it this afternoon when i saw it on the news... chrysler holding... holding what?

[Northstar]

Damn, they went really cheap. We'll see what effect this has on Chrysler's short-term sales and I also think next year's NY show (NAIAS and Chicago seem too soon) will be pretty telling (with concepts) as to what Cerebus will be able to do. Unfortunately, most of the stuff to come for the next ~2-3 years is pretty much locked in I would think. I doubt we're going to be seeing much on the road for a good 4 years that the new management has developed. Notice how long it took the Lutz cars to come at GM.

[red]

Good to see Chrysler go private. I think that opens up a lot more opportunities...might even stop Chrysler's typical business cycle of excelling & crashing every four years.

[dufus22]

I have a question? By going private, does it give them more leverage against the uaw? I mean can they farm out more jobs, or does the UAW still have to be involved?

[jbartley]

ok, who's to say Iacocca won't surface here? Good thing there's no kirk.

secondly, UAW/Gettlefinger, STFU. No one cares. Where will you be in ten years?

in diapers, babbling incoherent nonsense (like yesterday), and spending his pension like no tommorrow.

[C.H.U.D.]

It would probably look better if we had the company name spelt right.

i.e. Cerberus, not Cerebus

[Sixty8panther]

Hmm.... so can we bring back tailfins now, you know 1960 Chrysler 300F style?

[A Horse With No Name]

Actually I could use a 60 300F, although I like the 62H better.

Chris

[regfootball]

in diapers, babbling incoherent nonsense (like yesterday), and spending his pension like no tommorrow.

i thought he was hangin with rap stars.