DaimlerChrysler to Sell 80% of Chrysler to Cerebus
14 May 2007
Three months to the day after Chairman Dieter Zetsche said that DaimlerChrysler “would explore all options” concerning the future of Chrysler, DaimlerChrysler announced that it will sell 80.1% of what was the Chrysler Group to Cerebus Capital management, a private equity firm, for €5.5 billion (US$7.4 billion).
Daimler AG, as DaimlerChrysler will rename itself, will hold a 19.9% interest in the new company, Chrysler Holding, LLC, which will hold 100% of the future Chrysler Corporation—which will continue to produce and sell Chrysler, Dodge and Jeep brand vehicles—and the future Chrysler Financial Services.
Of the total €5.5 billion, €3.7 will flow into the industrial business (Chrysler Corporation), €0.8 will go to the financial services business, and DaimlerChrysler will receive the balance of €1.0 billion. In addition, DaimlerChrysler will grant a loan of €0.3 billion to Chrysler Corporation LLC.
Pension and healthcare obligations will be retained by Chrysler.
According to the agreement, upon the closing of the transaction, DaimlerChrysler will transfer the industrial business of the Chrysler Group completely free of debt. Due to the Chrysler Group’s anticipated negative cash flow until closing in connection with its restructuring plan, the transaction will give rise to a cash outflow of €1.2 billion for DaimlerChrysler, resulting in an overall net cash outflow from the transaction to the company of €0.5 billion.
In addition, DaimlerChrysler will have to discharge long-term liabilities of the Chrysler Group in connection with the transaction; the company is to be transferred debt-free. Closing of the transaction is expected to take place in the third quarter of 2007.
Chrysler will continue existing projects with the Mercedes Car Group, such as the development of conventional and alternative drive systems, purchasing, and sales and financial services outside the NAFTA region. The companies will establish a Joint Automotive Council in which representatives of both sides will assess and decide on the potential of new and current projects. The Council will be led by board-level members from each company.
Cerberus Capital Management, L.P., New York, is one of the largest private investment firms in the world, with approximately $23.5 billion under management in funds and accounts. Founded in 1992, Cerberus currently has significant investments in more than 50 companies that, in aggregate, generate more than $60 billion in annual revenues worldwide.
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