Chrysler sold in £3.76 billion dealThu, 17 May 2007
By Ben Whitworth
17 May 2007 09:38
Chrysler has been sold. In one of the biggest private equity deals seen in the automotive industry, Cerberus Capital Management has purchased 80.1% of Chrysler in a £3.76billion deal, leaving DaimlerChrysler with the remaining 19.9% stake in the loss-making company.
The move marks the close of arguably the most high-profile transatlantic merger and shuts the door on Canadian car assembly giant Magna and billionaire Kirk Kerkorian, who last month offered £2.27billion for Chrysler. The deal also brings to an end the troubled and often conflict-ridden relationship between Daimler-Benz and Chrysler, and at a price far below the £18.2billion Daimler paid in 1998.
The Daimler Chrysler merger was billed as a partnership of equals, but it soon became apparent after the briefest of honeymoon periods that Daimler was in control and was struggling to get to grips with Chrysler, which was haemorrhaging money left, right and centre.
Last year a bruised and battered Chrysler posted record losses of £760million, saddled by growing healthcare and pension costs. The announcement of the sale – which sent DaimlerChrysler shares spiraling upwards by 6.4% on the German markets this afternoon – will see the company’s name change to Daimler AG, subject to shareholders’ approval.
DaimlerChrysler’s 2007 net profit will take a £2.4billion hit as a result of the sale. According to DaimlerChrysler, Cerberus will take an 80.1% equity interest in a new holding company, Chrysler Holding LLC, with DaimlerChrysler retaining the remaining shares. Chrysler Holding would hold 100% of the future Chrysler Corporation, which would include the company's car making and financial sectors.
The sale has been given the thumbs-up by America’s all-powerful United Auto Workers union, despite the fact that Chrysler rather than DaimlerChrsyler will be responsible for worker’s pension and healthcare liabilities. 'The transaction with Cerberus is in the best interests of our UAW members, the Chrysler Group and Daimler,' said UAW President Ron Gettelfinger.
'Cerberus believes in the inherent strength of US manufacturing and of the US auto industry,' said Cerberus Capital Management chairman John Snow. 'Most importantly, we believe in Chrysler.'
Cerberus is a financial giant. One of the largest private investment firms in the world it has £11.9 billion under management in funds and accounts and its investment in over 50 companies generates £30 billion in annual revenues worldwide.
The sale comes on the back of an acquisitive year for Cerberus - last year it splashed out £3.75billion on a 51% stake in GMAC, General Motors’ financing section. Despite no official statement, rumours continue to circulate that Cerberus will merge Chrysler and GMAC as soon as possible.
The big debate starts here. Can Chrysler survive the sale? Will it come through as a profitable and lean independent carmaker? And if it does, how long will it take? What impact on the global automotive economy will this split have? And what if the unthinkable happened and Chrysler collapsed? If you think you know the answers, click the ‘Add Comment’ button and start typing…
By Ben Whitworth