Daimler reaches $7.4 billion deal
Company to focus on Mercedes, keep stake in Chrysler
By TIM HIGGINS, Detroit Free Press
Posted Tuesday, May 15, 2007
Chrysler Group President Tom LaSorda (from left), Cerberus Chairman John W. Snow and DaimlerChrysler CEO Dieter Zetsche shake hands before a news conference Monday announcing the sale of Chrysler to Cerberus. AP/MYRIAM VOGEL
DETROIT -- In a deal to end nine unhappy years of marriage between Chrysler and Mercedes, DaimlerChrysler AG announced Monday that it had picked private equity firm Cerberus Capital Management to take a majority ownership in the Auburn Hills, Mich., automaker.
Cerberus, a New York City fund with several ties to the auto industry already, will pay $7.4 billion for an 80 percent stake in the maker of Chrysler, Dodge and Jeep brand vehicles.
DaimlerChrysler AG plans to change its name to Daimler AG, focus on its Mercedes luxury brand, and retain about 20 percent of Chrysler, the company announced.
"We're confident that we've found the solution that will create the greatest overall value -- both for Daimler and Chrysler," DaimlerChrysler chief executive Dieter Zetsche said. "This was a difficult task for me."
The deal does not include job cuts beyond the 13,000 announced in February. "There are no new job cuts planned in connection with this transaction announced today," Chrysler CEO Tom LaSorda said.
It was unclear whether the deal will have any immediate impact on Chrysler's current operations, including the plant in Newark, which builds the Dodge Durango and Chrysler Aspen and is slated for closing in late 2009. It employs more than 1,800 people.
Auto union on board
In a surprising twist, DaimlerChrysler's announcement included a statement from UAW President Ron Gettelfinger showing support for the deal. A member of DaimlerChrysler's supervisory board, Gettelfinger had argued in favor of keeping the company together.
"The transaction with Cerberus is in the best interests of our UAW members, the Chrysler Group and Daimler," Gettelfinger said.
Of the $7.4 billion Cerberus is spending on the transaction, $5 billion will go into the newly created Chrysler Corp. LLC and $1.05 billion will go into Chrysler Financial Services to strengthen the equity base of both businesses. Through the deal, Daimler will receive $1.35 billion.
Daimler will give the new Chrysler a $400 million loan. Chrysler pension and health care liabilities will stay with Chrysler, DaimlerChrysler said.
"We know the path forward will not be easy," Cerberus chairman and former U.S. Treasury Secretary John Snow said as he posed for pictures with LaSorda in Stuttgart, Germany. "We are going to work to make sure the company succeeds and as the company succeeds, it will maximize the opportunities for its workers. ... Our objective here is a successful Chrysler."
Matt Davidson, a worker at Warren (Mich.) Truck, said he's uneasy about the Cerberus deal, but trying to just take change as it comes.
"I've got mixed emotions. I sometimes believe what they're saying, that they want to leave it alone for a while. The next 10 to 12 months will tell. You've just got to try to stay at ease, there's no use worrying about something you have no control over."
Kirk Kerkorian, who tried to buy Chrysler in the 1990s, also made a public bid of $4.5 billion in April but his offer was apparently frozen out because of his contentious past with DaimlerChrysler.
Purchase to be finished in fall
DaimlerChrysler's management board approved the deal with Cerberus on Monday and it still requires the company's supervisory board, the equivalent to a board of directors, to sign off on it. The deal requires regulatory approval. DaimlerChrysler expects it to be finalized this fall.
DaimlerChrysler's announcement comes nine years after Daimler-Benz AG and Chrysler Corp. united at the cost of around $36 billion in what at the time was called a "marriage made in heaven." It was an uneven marriage to begin with between luxury car and mass-market car-makers that never developed into a true meshing of synergies as promised.
German shareholders eventually grew unhappy, especially after Chrysler posted its losses in the third quarter of last year. In 2006, Chrysler posted an operating loss of $1.5 billion, a number recently restated to $680 million because of accounting changes.
At the stockholders' annual meeting in Berlin last April, the message was clear: Divorce.
Most analysts agree that any buyer will need dramatic concessions from the UAW in order to make a deal work. The unions have voiced their strong opposition to private equity firms in the auto business, and the UAW has already taken some blame from analysts for DaimlerChrysler's decision to sell Chrysler. Zetsche has been vocal about his frustration with the UAW for not giving Chrysler the same kind of health care concessions it gave Ford Motor Co. and General Motors.
Gettelfinger has said the union was never presented with financial information that showed Chrysler was going to lose money in 2006. DaimlerChrysler as a whole made $5 billion in net profit last year. It's been estimated that the U.S. division has nearly $20 billion in pension and health care liabilities.
News Journal staff reporter Luladey B. Tadesse and The Indianapolis Star contributed to this story.
PARENT COMPANY
A look at automaker DaimlerChrysler AG, the product of a $36 billion takeover of Detroit's Chrysler Corp. by Germany's Daimler-Benz AG in 1998. DaimlerChrysler announced Monday it is selling 80.1 percent of Chrysler to private equity firm Cerberus Capital Management LP.
HEADQUARTERS: Stuttgart, Germany, and Auburn Hills, Mich.
SALES: $200.1 billion for 2006.
EMPLOYEES: 382,000.
PRODUCTS: 4.4 million vehicles per year, including Mercedes and Maybach luxury cars, SUVs and commercial vehicles; Chrysler, Dodge and Jeep brands in the United States; Smart compact cars; and Freightliner heavy trucks.
OTHER BUSINESSES: Owns 15 percent stake in European Aeronautic Defence & Space Co. NV, the parent company of airplane maker Airbus. Affiliate Detroit Diesel makes medium- and heavy-duty diesel engines.
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