Cerberus in $7.4bn Chrysler deal

Private equity firm buys controlling stake in DaimlerChrysler's unprofitable brand.

    Tom LaSorda, left, said Cerberus's bid signalled a
    long-term commitment to Chrysler [AFP]

    Job cuts are not expected in addition to the 13,000 Chrysler announced in February, when it announced a $1.5bn operating loss for 2006.

     

    Chrysler's line of four-wheel-drives and pick-up trucks have become unpopular with US consumers concerned with rising fuel costs.

     

    Obligations

     

    The Cerberus deal severs a product range that combined American mass-market brands Jeep, Dodge and Chrysler with Germany's Mercedes-Benz, Maybach and Smart brands.

     

    The majority-stake buyout will result in a net cash outflow of $677m for DaimlerChrysler, now the world's fifth-biggest carmaker.

     

    Chrysler must retain billions of dollars in pension and healthcare obligations for its workers.

     

    The German company said it will also contribute $880m to cover long-term liabilities at Chrysler, estimating that the Cerberus deal will cut DaimlerChrysler's 2007 net profit by up to $5.5bn.

     

    DaimlerChrysler stock rose as much as 7.8 per cent on the news.

     

    Bidding competition

     

    Disappointed by its earnings, DaimlerChrysler put Chrysler up for sale in February.

     

    Bidders vying for Chrysler included Kirk Kerkorian's Tracinda Corporation and Magna International, a Candian car parts manufacturer.

     

    One key to the deal is Chrysler's $19.1bn unfunded healthcare liabilities related to contracts with its factory workers, represented by the United Auto Workers (UAW) union.

     

    "The transaction with Cerberus is in the best interests of our UAW members, the Chrysler Group and Daimler," said Ron Gettelfinger, UAW president and a member of DaimlerChrysler's supervisory board.

     

    Cerberus has previous experience with the car industry, with a Cerberus-led consortium buying a 51 per cent stake in the financing arm of General Motors last year.

    SOURCE: Agencies


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