Private equity group buys Chrysler for $7.4bn
Private equity group buys Chrysler for $7.4bn
By John Reed in London
Copyright The Financial Times Limited 2007
Published: May 14 2007 10:19 | Last updated: May 14 2007 14:59
An affiliate of Cerberus Capital Management is to buy control of Chrysler, DaimlerChrysler’s lossmaking US unit, for €5.5bn ($7.4bn) in one of the largest private equity deals yet for the automotive sector.
The deal, announced on Monday, marks the unravelling of the troubled nine-year-old alliance between the maker of Mercedes cars and Chrysler, Dodge, and Jeep vehicles. The company’s name is due to change to Daimler AG, subject to shareholders’ approval.
DaimlerChrysler’s boss flagged a refocusing of his company’s efforts on the luxury car segment. Chrysler’s financial losses had been an irritant to DaimlerChrysler’s shareholders, who felt the US volume manufacturer’s problems distracted it from the business of the Mercedes Car Group.
“We will be the leading manufacturer of premium vehicles and a provider of premium services in every market segment we serve worldwide,” Dieter Zetsche, DaimlerChrysler’s chief executive, said.
The sale will hit DaimlerChrysler’s 2007 net profit to the tune of €3bn-€4bn, the company said. Daimler’s shares jumped 3.7 per cent in afternoon Frankfurt trading.
Cerberus will acquire 80.1 per cent equity interest in a new holding company, Chrysler Holding LLC, with DaimlerChrysler retaining the remaining shares, the Stuttgart-based company said in statement.
Chrysler Holding, in turn, would hold 100 per cent of the future Chrysler Corporation, incorporating both Chrysler’s vehicle and financial-services divisions.
Of the total capital contribution of €5.5bn, €3.7bn would flow into the industrial business, and €800m into the financial services business in order to strengthen both units’ equity base. DaimlerChrysler will receive the balance of €1bn.
Additionally, DaimlerChrysler will grant a loan of €300m to the Chrysler Corporation. The German-US company said that the deal would result in a net cash outflow of €500m, and was due to give more details of it at a press conference in Stuttgart later on Monday.
Crucially, United Auto Workers president Ron Gettelfinger endorsed the sale, saying: “The transaction with Cerberus is in the best interests of our UAW members, the Chrysler Group, and Daimler.”
The UAW’s co-operation is key in reducing Chrysler’s billions of dollars of pension and healthcare liabilities, which have been a drag on its profits. These obligations will be retained by Chrysler companies, DaimlerChrysler said.
Cerberus won control of Chrysler over rival bids led by the Blackstone Group and Magna International, the Canadian auto parts supplier. JP Morgan Chase is advising DaimlerChrysler on the sale.
Some Chrysler employees had been wary of a private equity firm taking control of the company, but Cerberus sought to reassure on its intentions for the third-largest Detroit-area carmaker.
“Cerberus believes in the inherent strength of US manufacturing and of the US auto industry,” it said. “Most importantly, we believe in Chrysler.”
Cerberus last year led a consortium that bought 51 per cent of GMAC, General Motors’ financing arm, for $7.4bn.
By John Reed in London
Copyright The Financial Times Limited 2007
Published: May 14 2007 10:19 | Last updated: May 14 2007 14:59
An affiliate of Cerberus Capital Management is to buy control of Chrysler, DaimlerChrysler’s lossmaking US unit, for €5.5bn ($7.4bn) in one of the largest private equity deals yet for the automotive sector.
The deal, announced on Monday, marks the unravelling of the troubled nine-year-old alliance between the maker of Mercedes cars and Chrysler, Dodge, and Jeep vehicles. The company’s name is due to change to Daimler AG, subject to shareholders’ approval.
DaimlerChrysler’s boss flagged a refocusing of his company’s efforts on the luxury car segment. Chrysler’s financial losses had been an irritant to DaimlerChrysler’s shareholders, who felt the US volume manufacturer’s problems distracted it from the business of the Mercedes Car Group.
“We will be the leading manufacturer of premium vehicles and a provider of premium services in every market segment we serve worldwide,” Dieter Zetsche, DaimlerChrysler’s chief executive, said.
The sale will hit DaimlerChrysler’s 2007 net profit to the tune of €3bn-€4bn, the company said. Daimler’s shares jumped 3.7 per cent in afternoon Frankfurt trading.
Cerberus will acquire 80.1 per cent equity interest in a new holding company, Chrysler Holding LLC, with DaimlerChrysler retaining the remaining shares, the Stuttgart-based company said in statement.
Chrysler Holding, in turn, would hold 100 per cent of the future Chrysler Corporation, incorporating both Chrysler’s vehicle and financial-services divisions.
Of the total capital contribution of €5.5bn, €3.7bn would flow into the industrial business, and €800m into the financial services business in order to strengthen both units’ equity base. DaimlerChrysler will receive the balance of €1bn.
Additionally, DaimlerChrysler will grant a loan of €300m to the Chrysler Corporation. The German-US company said that the deal would result in a net cash outflow of €500m, and was due to give more details of it at a press conference in Stuttgart later on Monday.
Crucially, United Auto Workers president Ron Gettelfinger endorsed the sale, saying: “The transaction with Cerberus is in the best interests of our UAW members, the Chrysler Group, and Daimler.”
The UAW’s co-operation is key in reducing Chrysler’s billions of dollars of pension and healthcare liabilities, which have been a drag on its profits. These obligations will be retained by Chrysler companies, DaimlerChrysler said.
Cerberus won control of Chrysler over rival bids led by the Blackstone Group and Magna International, the Canadian auto parts supplier. JP Morgan Chase is advising DaimlerChrysler on the sale.
Some Chrysler employees had been wary of a private equity firm taking control of the company, but Cerberus sought to reassure on its intentions for the third-largest Detroit-area carmaker.
“Cerberus believes in the inherent strength of US manufacturing and of the US auto industry,” it said. “Most importantly, we believe in Chrysler.”
Cerberus last year led a consortium that bought 51 per cent of GMAC, General Motors’ financing arm, for $7.4bn.
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