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Daimler set to sell rest of Chrysler stake to Cerberus

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Financial Times story

Daimler set to sell Chrysler stake to Cerberus

By Daniel Schäfer and John Reed

Published: September 24 2008 23:00 | Last updated: September 24 2008 23:00

Daimler is preparing to sell its remaining minority stake in ailing US carmaker Chrysler to private equity group Cerberus, in a move that would mark the final act of a 10-year-long combination.

The German premium car group on Wednesday confirmed it was in talks with Cerberus, which bought the majority of Chrysler more than a year ago, about a sale of Daimler’s 19.9 per cent stake in the US company.

Daimler declined to comment on further details and did not give any explanation about the reasons for a possible sale. Cerberus said it approached Daimler about a deal, but said any sale would not affect co-operation between Chrysler and the German group.

The news of the talks came as a surprise as Daimler had hinted it would hold on to the Chrysler stake.

Explaining the decision to keep a stake in the company when Daimler sold it in May 2007 Dieter Zetsche, chief executive, said: “We basically have all the upside benefits without any risks.”

At the time, however, bankers said that Daimler’s continued presence in Chrysler – and the technological and other synergies it entailed – was essential to close the $7.4bn deal at a face-saving price.

Since the sale, Chrysler’s fortunes – along with those of General Motors and Ford Motors – have taken a sharp turn for the worse with a collapse in US car sales and consumers’ shift away from the minivans and trucks that dominate its product portfolio. Chrysler’s sales were down by more than a third year-on-year in August.

Chrysler has cut thousands of jobs and closed plants to match its shrinking market. Daimler took charges of €187m ($274m) on its earnings in the first half related to restructuring at Chrysler, and another €168m related to reduced residual values of Chrysler vehicles.

The Chrysler stake has been viewed as a drag on Daimler’s share price, which has fallen considerably in recent months, sparking rumours about a possible hostile takeover of the company. Analysts also said a sale could be good news for Chrysler as management could now run the company without having to secure the approval of its minority shareholders in Stuttgart.

“This gives Cerberus more flexibility with respect to how they want to run Chrysler going forward,” said Michael Robinet, vice-president for global vehicle forecasts with CSM Worldwide in Detroit. Daimler will still retain some interests in Chrysler after a sale as both are still co-operating in some areas. Also, Daimler granted Chrysler a €1.5bn credit after the sale to Cerberus.

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