Private equity firm Cerberus looks set to take an 80% share in the Chrysler Group in a move that should free up Daimler and, hopefully, put Chrysler back on track.
In what has been one of the most eagerly-watched deals in the automotive industry, Cerberus Capital Management has been elected by DaimlerChrysler AG to be the new majority shareholder for the struggling Chrysler Group.
Cerberus will pay close to $7,4 billion (more than R 51 billion) for an 80% stake in Chrysler, the remaining 20% will be retained by DaimlerChrysler AG. This deal will see the German company relabeled as “Daimler AG” and is projected to cut it’s net profits by between €3 – 4 billion (R 28 – 38 billion). The €14 billion (R 132 billion) in healthcare liabilities, that arose from contracts put in place by the United Auto Workers, will remain Chrysler’s liability.
Chrysler was open to negotiations back in February, when the company announced a loss of $1,5 billion for the 2006 period (more than R 10 billion) giving impetus to a restructuring plan that cost 13 000 jobs.
Several prominent bidders, including auto parts supplier Magna International, Kerkorian’s Tracinda Corp, and private equity firm Blackstone Group entered into negotiations a couple of months ago, but DaimlerChrysler has gone ahead with Cerberus in a deal that should be concluded in the third quarter of this year.
“Cerberus is the right strategic buyer for Chrysler, with a long-term commitment to Chrysler’s growth and success,” said Chrysler president Tom LaSorda. “They are committed to working constructively with both union leadership and Chrysler’s management team to help Chrysler realize its full potential.”
Cerberus Chairman John Snow put aside concerns surrounding the investment in what is an ailing company .
“Our approach is fundamentally long term. We don’t think about the next quarter. We don’t think about what analysts have to say about us,” he said during a news conference in Stuttgart. “Our capital is patience.”
The Cerberus private equity firm has seen rapid growth in recent years and specializes in acquiring financially distressed companies and implementing drastic measures to make them profitable again. Although this fund-led group has little experience in running an automotive company, it did acquire a 51% stake in General Motor’s financial arm, GMAC, last year. Cerberus has, however, hired former Chrysler president Wolfgang Bernhard to lend his expertise.
Of this deal’s total capital contribution of $7,4 billion, $5,0 billion (R 34 billion) will be allocated to the industrial business (Chrysler Corporation LLC) and $1,05 billion (R 7,3 billion) will flow into the financial services business in order to strengthen the equity base of both businesses. DaimlerChrysler will receive the balance of $ 1,35 billion (R 9,4 billion) and will also grant a loan of $0.4 billion (roughly R 2,8 billion) to Chrysler Corporation LLC.
“We’re confident that we’ve found the solution that will create the greatest overall value, both for Daimler and Chrysler,” DaimlerChrysler CEO Dieter Zetsche commented of the recent announcement.
From a local perspective, with the deal in a state of relative infancy, a source at DaimlerChrysler SA says that the company does not expect any immediate impacts upon its dealer and distribution networks.