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.
The Daimler merger was handled badly from the start. It seems to me it was a case of a "my way or the highway" kind of takeover "of equals", which turned out to be very unequal. I think this merger will go down as a way NOT to do it in a lot of business schools and maybe Daimler learned a lesson as well.
Posted by: SJC | 14 May 2007 at 06:40 AM
What a steal. Paying $7.4 billion when Damler paid $37 billion less than ten years ago. The question now is, which brands are worth the doe?
I could see a Japanese company picking up Jeep to appear about as American as you can get. Any other guesses?
Posted by: dave | 14 May 2007 at 08:17 AM
Yes, I agree 7.4B seems like a good deal. If I had that cash in my sock drawer I'd have bought them.
Posted by: Rich | 14 May 2007 at 08:45 AM
It seems like the classic scenario is for the buyers to sell off parts of the company. I suppose that they could sell Jeep to the Chinese. Jeep was one of the first car makers to go into China, because they government thought the vehicle had utility and the company was willing to invest and share the technology.
Posted by: SJC | 14 May 2007 at 09:29 AM
Chucky is just about done. Expect the assets of this company to be parted out to various other automakers in the next few years.
Posted by: tom | 14 May 2007 at 10:04 AM
It looks to me as if Chrysler production is doomed in North America. The UAW is too strong and the cars aren't good enough, so capital will leave.
Cerebus is a money company, not a car company. They probably intend to get as much for parting out the auto production and misc. holdings as they can. Sell at least half of Jeep for cash to the Chinese.
The big prize - I think - is the Chrysler distribution and selling network in the US. Chinese automakers can move into the US very quickly if infrastructure can just be bought. And the Chrysler dealers have a big incentive to play nice.
Daimler wants it to all go away. The auto business is quite odd about the scope of minority crossholdings. Companies buy, keep, a sell all sorts of not-very-useful small stakes in other makers. To me it seems like a brain disorder, but everyone does it.
Posted by: K | 14 May 2007 at 10:49 AM
Talk about your classic Jungian culture clash: J-type Germans trying to take over P-type Americans. It's one for the textbooks all right.
Posted by: Neil | 14 May 2007 at 11:11 AM
I recommend Lee Iacocca's new book, "Where have all the Leaders Gone?" for an excellent take on the whole Chrysler issue. He sites the takeover of Chrysler by Diamler as one of the worst times of his life--as you can imagine, he took it all extremely personally. He never saw how it could've worked as the companies are so different.
Personally I hope that Cerebus doesn't butcher the company into pieces. Chrysler has proven numerous times to be a great car company, but it needs a great leader first and foremost. Lee, if you are reading this, your Company needs you...Please come back!
Posted by: Schmeltz | 14 May 2007 at 11:30 AM
So does Daimler have a poor ability to pick companies or do foreign companies under their management just fall to pieces? Mitsubishi nearly died off in the US and then they sold their holdings...now Mitsubishi looks ready to be resuscitated with their latest offerings (of course in the US, none of those offerings are fuel efficient).
Posted by: Patrick | 14 May 2007 at 02:30 PM
Well the bankruptcy vultures have control of Chrysler. I would expect that the American domestic manufacturers to soon consist of the Big One and a half. Of the several score of US auto entrepreneurs at the dawn of the 20th century, we will soon come down to two survivors.
How long will Ford and GM survive?
what can the vultures sell? The interest in the GM dual mode HEVs; thre Chrysler interest in the Worl Engien and Plants. And a few Jeep designs. Maybe New Process Gear and that is about it.
Last one left, turn out the Lights... Adios MOPAR...
Posted by: Stan Peterson | 14 May 2007 at 03:07 PM
Pretty obvious,the Looters are coming.Who are these 'Investors',what are their Names and Addresses,where do they get the Money,or do they just "Buy in"with Bushel Baskets of IOUs?This Robbery and Looting(so called Mergers and Aquisitions) must be stopped immediately.Any uneducated Moron nowadays can own a Multi-Billion Dollar Corporation,polluting and managing it into the Ground,then golden parachute his way out with multi-million dollar Retirement Packages.It's high time these Corporate Criminals are read the Riot Act and told by Our Government to tow the line or do their business somewhere else.
It is incoceivable how there could be Doubts about the legality of looting Pension Funds,Wall Street Gangsterism,Bank Frauds,Loan Sharking,Usery Credit Card Rates and the Theft of Public Property through so called 'Privatisation".Many of these Conditions were prevalent in Germany,which brought in the Hitler Regime.
The Public,regardless how dumbed down,will only take so much of this Crap,let this be a wakeup call to all you greedridden,thieving 'Investors'.
Posted by: Observer | 14 May 2007 at 03:33 PM
re:
"Any uneducated Moron nowadays can own a Multi-Billion Dollar Corporation,polluting and managing it into the Ground,then golden parachute his way out with multi-million dollar Retirement Packages."
Please God. Let one be me. Amen.
Posted by: K | 14 May 2007 at 03:52 PM
Cerberus is paying "only" $7.4B but is also assuming $18B in pension obligations. Daimler retains 19.9% as well. The Chrysler Corporation that "merged" with Daimler is a money loser. Hindsight is 20-20 Daimler management would be hailed as geniuses if the value of the Chrysler unit had gone up, well some investments appreciate and some don't. Daimler decided to stop throwing good money after bad and cut their losses. Intelligent people recognize mistakes and learn from them.
Cerberus already owns 51% of GMAC so it will increase its presence in auto financing, which is usually profitable, as well as realize savings by combining GMAC with Chrysler Financial.
The chairman of Cerberus is John W Snow former US Secretary of the Treasury under the current President Bush.
Posted by: sws1776 | 14 May 2007 at 09:25 PM
One analysis on the business channel had Daimler effectively paying the investment firm something like $600 million to take the company, after all the math is done.
Cerberus is named after the three headed beast that guarded the gates of hell in mythology. With Snow at the head, that seems appropriate.
Posted by: SJC | 15 May 2007 at 08:29 AM
I'm not saying the people at Daimler were stupid, far from it. But anyone that knows both Germans and American (I'm married to a German and I live right next to the US) knew at the time of the merger that it would be a cultural mismatch and a probable failure. Having spent time in Germany I can tell you that much of the population there firmly believes that only the Germans can make a halfway decent car. Most were unaware that the repair record of Japanese cars was superior. I remember at the time of the merger thinking that that attitude was going to go over like a ton of bricks with the Americans.
Posted by: Neil | 15 May 2007 at 08:29 AM
For a long time, the U.S. auto makers had a "fix it at the dealer" attitude. If the car was not assembled just right, then the dealer could fix it.
With Japan so far away and initial dealer networks small, Japanese car makers made sure everything was right before it went on the boat. This necessity led to great quality scores and the rest is history.
Posted by: SJC | 15 May 2007 at 08:43 AM
This could be the perfect opportunity for Chrysler to reinvent itself. Drop the "Hemi" marketing hype. No one these days needs a new car with a V-8 and 450HP. If they do, they can get an old '72 Cuda or a Duster and put a real Hemi in it, with all the latest aftermarket electronic controls. Compete with GM and Ford with trucks only, but move into different directions with cars.
Chrysler should push electric cars, and hybrid designs like the Chevy Volt. Or get with that Indian company which is developing a compressed air powered car, designed by former Formula One engineer Guy Negre,for Luxembourg based MDI. That looks VERY exciting to me. I read about it in the latest copy of Popular Mechanics.
Take a short term beating, but a long term lasting existance! We all need that.
Posted by: Mark A | 15 May 2007 at 09:48 AM
So far, they say that they will keep the management and brands in place. They will not layoff nor sell off. This remains to be seen and I think it will hold as long as the results come in as planned. Stay tuned for changes if the results are not pleasing however. Since they are private, we will not know that until after the fact.
Posted by: SJC | 15 May 2007 at 09:00 PM