Private equity firm Cerberus will buy the majority of DaimlerChrysler's struggling Chrysler Group for $7.4 billion, breaking up a transatlantic car union that never lived up to its billing as a marriage made in heaven.
Cerberus Capital Management gets an 80.1 per cent stake in Chrysler Group and its related financial services business, DaimlerChrysler said yesterday.
The deal, months in the making, puts a major US automaker in hands of a private equity group for the first time.
It breaks up a product line-up that yoked American mass-market brands Jeep, Dodge and Chrysler with Germany's premium Mercedes-Benz, luxury Maybach and Smart minicar brands at a time of wrenching restructuring for the US auto industry.
The former Daimler-Benz AG bought Chrysler for $36 billion in 1998.
The accord calls for Chrysler to retain billions of dollars in pension and healthcare obligations for its workers and will result in a net cash outflow of €0.5 billion for DaimlerChrysler, now the world's fifth-biggest carmaker.
The company estimated the sale will cut DaimlerChrysler's 2007 net profit by €3 to €4 billion, adding the German company will contribute €650 million to cover long-term liabilities at Chrysler.
DaimlerChrysler stock rose as much as 7.8 per cent on the news and was up five per cent at €63.61 by 0922 GMT, by which time nearly three times a normal day's volume had traded.
Dismayed by its volatile earnings, DaimlerChrysler put Chrysler up for sale in February after the unit posted a loss of nearly $1.5 billion for 2006.
Bidders that publicly said they were vying for Chrysler are Kerkorian's Tracinda Corp. and Canadian autoparts maker Magna International. Private equity firm Blackstone Group also pursued Chrysler, and was said to be linked up with smaller buyout firm Centerbridge Partners.
New York-based Cerberus is a private investment fund that has built a huge private equity and hedge-fund practice.
Key to the deal is the company's $18 billion in pension and healthcare liabilities related to Chrysler's contracts with its United Auto Workers-represented factory workers. DaimlerChrysler said Chrysler would keep the liabilities.
UAW President Ron Gettelfinger, who sits on DaimlerChrysler's supervisory board and had publicly opposed a sale to a private equity buyer, hailed the deal.
"The transaction with Cerberus is in the best interests of our UAW members, the Chrysler Group and Daimler," he said.
Chrysler, which is in the process of cutting 13,000 jobs, is targeting a return to profitability in 2008. A key hurdle, analysts have said, is its ability to clinch a new contract with the UAW that reduces costs, particularly for healthcare.
Chrysler's current four-year contract with the UAW expires in September. Key to its pursuit of Chrysler is Cerberus's experience with the auto industry and its stake in GM's financing arm. General Motors Corp. sold a 51 per cent stake in its financing arm, GMAC, to a consortium led by Cerberus in a deal worth about $14 billion last year.
Among the prized assets within Chrysler is its own auto-financing arm.