Post Number: 74
|Posted on Sunday, May 13, 2007 - 4:32 pm: || |
These guys at Cerebrus are serious heavy hitters. They are a NYC Private Equity firm. The union is in deep trouble...
http://www.nytimes.com/2007/05 /13/business/13cnd-chrysler.ht ml?hp=&pagewanted=print
May 13, 2007
Equity Firm Is Expected to Gain Control of Chrysler
By MICHELINE MAYNARD, ANDREW ROSS SORKIN and MARK LANDLER
DETROIT, May 13 — DaimlerChrysler appears ready to sell a controlling interest in the struggling Chrysler Group to Cerberus Capital Management, a private equity firm, people with direct knowledge of the discussions said today.
The deal, which would unwind the 1998 trans-Atlantic merger between Daimler-Benz and Chrysler, could be announced as soon as Monday, these people said. They insisted on confidentiality because of the sensitive nature of the talks.
It would conclude three months of discussions that have taken place since DaimlerChrysler announced in February that it was keeping all its options open for Chrysler, including a sale or finding a partner to run the company.
Chrysler lost $1.5 billion in 2006, prompting DaimlerChrysler to announce a restructuring plan for Chrysler, the second such plan in the past seven years. Under the latest turnaround plan, which calls for the company to cut 13,000 jobs, Chrysler is not expected to be profitable again until 2009. DaimlerChrysler is set to announce its first-quarter results on Tuesday.
Cerberus emerged as the leading bidder for Chrysler late last week, bankers involved in the transaction said. Over the past few days, officials of both Cerberus and DaimlerChrysler have been involved in detailed discussions.
Details of the transaction, including the selling price, were not immediately available. Daimler-Benz acquired Chrysler in a deal valued at $36 billion in 1998. That deal was originally portrayed as a “merger of equals” but turned out to be a takeover of the American company by the German one.
Indeed, a number of complexities must be solved for the arrangement to go through, including how Chrysler’s $18 billion liability for pensions and health care benefits for its current and future workers would be accounted for, people close to the discussions said.
Another big question is how Chrysler’s unions, including the United Automobile Workers and the Canadian Automobile Workers, would react the sale of a substantial stake in Chrysler. Leaders of both those unions have said they opposed the sale of Chrysler and wanted to see it remain as part of DaimlerChrysler.
But that option seems unlikely, should the transaction go through. Along with Cerberus, other interested bidders in Chrysler included two other private investment firms, the Blackstone Group, which was exploring a purchase in conjunction with Centerbridge Partners.
Magna International, the Canadian auto parts company, and the Tracinda Corporation, the holding company owned by the billionaire Kirk Kerkorian, also said they had made bids for Chrysler.
If the sale goes through, DaimlerChrysler is likely to create a separate corporation encompassing Chrysler, and take a minority stake. Cerberus is likely to keep Chrysler’s management in place, at least for the time being, people close to the discussions said. Chrysler’s former president, Wolfgang Bernhard, who advised Cerberus, may receive a seat on the board of the new Chrysler.
Mr. Bernhard has visited Chrysler several times in the past few weeks, and has remained friendly with DaimlerChrysler’s chief executive, Dieter Zetsche, who held the comparable job at Chrysler when Mr. Bernhard was president.
A sale to Cerberus would mark the company’s latest investment in an automotive-related company. Last year, Cerberus headed a consortium that purchased a 51 percent stake in the General Motors Acceptance Corporation, the financing arm of General Motors.
Cerberus also reached a tentative agreement to purchase a controlling interest in the Delphi Corporation, G.M.’s former parts supplier which is operating in bankruptcy. But that transaction fell apart, after Delphi and G.M. were unable to agree on contract terms with the U.A.W.
It is not clear whether DaimlerChrysler would revert to the old Daimler-Benz name or come up with a new identity for itself.
A deal with Cerberus “puts an enormous amount of pressure on the union,” said David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich. The U.A.W. had tried to discourage a sale of Chrysler, although officials had conceded that they would prefer Magna over a private equity firm.
They thought private equity “would be the end of the world, and in some ways it probably would be,” Mr. Cole said. “The union is in a horrifying box right now. There’s got to be some real hardball that’s a part of this to get the rank and file to go along with it.”
Post Number: 289
|Posted on Sunday, May 13, 2007 - 5:26 pm: || |
I am worried about the impact that this will have on jobs in Michigan. I wonder how many of these 13,000 jobs cuts will happen in state. However, my wish (although, I am sure it has no chance) is that this group will have a consolidation streak and bring jobs that are spread around the US back to Detroit. Moreover, to one up my fantasy, I hope they decide to take advantage of the tax benefits (whatever they are) of being downtown and locate many of those jobs there……..
(Message edited by tkelly1986 on May 13, 2007)
Post Number: 727
|Posted on Sunday, May 13, 2007 - 5:52 pm: || |
Detroit News confirms it:
http://detnews.com/apps/pbcs.d ll/article?AID=/20070513/UPDAT E/705130357
Post Number: 525
|Posted on Sunday, May 13, 2007 - 9:17 pm: || |
A harsh reality is that in order for the state/the auto industry to compete and survive, the unions must be greatly weakened or eliminated. If Cerebrus can accomplish this, and doesn't plan to take Chrysler apart for profit, it will be a good thing for the economic recovery of the industry and the region/state.
Yes, the good old days of high wages and benefits per low productivity for an undereducated and undertrained workforce are likely over. But the lean industry that results will be well prepared to compete with the rest of the world, and we will be much better off for it.
Post Number: 7406
|Posted on Sunday, May 13, 2007 - 10:33 pm: || |
Another article from tomorrow's WSJ:
Accord to Sell
Most of Chrysler
Deal Would Rid Parent
Of Billions in Liabilities,
Shift Control to Cerberus
By GINA CHON, JASON SINGER, DENNIS K. BERMAN and JEFFREY MCCRACKEN
May 14, 2007
DaimlerChrysler AG is expected to announce as early as today a deal to sell a controlling stake in Chrysler Group, Detroit's No. 3 auto maker, to private-equity firm Cerberus Capital Management LP, according to people familiar with the matter.
The proposed deal would allow the German auto giant to shed Chrysler's $18 billion in retirement and health-care liabilities and could open the door to further restructuring of the nation's unionized auto makers.
A private-equity takeover of Chrysler would mark a watershed for the industry, which is struggling under the weight of massive pension and health-care obligations to its unionized workers. Those debts and the cash required to fund them have hobbled General Motors Corp., Ford Motor Co. and Chrysler in the face of relentless competition from Asian and European rivals. Industry analysts estimate that the overseas and U.S. operations of Japanese auto makers like Toyota Motor Corp. have a labor-cost advantage over Chrysler of as much $30 an hour.
Cerberus has a record of slashing costs at operations it acquires, and some analysts say a Cerberus-owned Chrysler could move much more aggressively to cut labor costs, prune Chrysler's overpopulated network of U.S. dealers and shift investment to developing markets overseas. But any final deal for Chrysler also hinges on what happens this summer, when the United Auto Workers kicks off negotiations for new master contracts with all three Detroit auto giants.
The proposed deal calls for forming a new company to assume Chrysler's pension and health-care liabilities, in which Daimler would hold a minority stake. In addition, Cerberus would make a substantial payment to DaimlerChrysler, according to people familiar with the matter. The size of the payment couldn't be learned, but it is likely to fall far short of the $36 billion the former Daimler-Benz AG paid for Chrysler Corp. in 1998.
Negotiations were at an advanced but fluid stage last night, with terms subject to change until a pact is signed. Yesterday, conference rooms at Manhattan-based law firm Shearman & Sterling, which is representing Daimler, were abuzz with executives, lawyers, and bankers filing between meetings, said a person familiar with the matter.
Under the proposed deal, Chrysler Chief Executive Tom LaSorda would continue to run the company, people familiar with the talks said. Cerberus adviser Wolfgang Bernhard, a former Chrysler chief operating officer, wouldn't have an executive role at the auto maker, but could have a board seat under the proposed deal, they said.
The plan amounts to a massive bet by Cerberus that Chrysler can be turned around. Private-equity buyers typically acquire public companies or parts of them and take them private, seeking to refurbish them outside the public spotlight, in hopes of selling them later at a profit. In many private-equity deals, the buyer borrows against the company's assets or makes other financing deals to help ensure an acquisition pays off. However, Chrysler's massive pension and health-care liabilities mean Cerberus is planning to inject some of its own capital to keep the company running while it restructures operations.
A sale to Cerberus could face opposition from Chrysler's unions, which have said they oppose a private-equity takeover of the company. The UAW, in particular, has a contentious relationship with Cerberus. The union recently refused the firm's request for wage cuts in connection with a deal to buy auto-parts supplier Delphi Corp. As a result, Cerberus, which was leading a group of investors seeking to acquire Delphi out of bankruptcy protection, is likely to pull out of the deal.
Last month, the UAW, which represents about 50,000 of Chrysler's 80,000 employees, refused Cerberus's demands for wage cuts at Delphi, making it likely that the firm will pull out of a deal to buy the auto-parts supplier, which is operating under bankruptcy-court protection.
Other parties bidding for Chrysler are Canadian auto-parts maker Magna International Inc. and a team made up of the Blackstone Group and Centerbridge Capital Partners. The groups recently submitted a second round of bids to DaimlerChrysler. Billionaire Kirk Kerkorian, who publicly offered $4.5 billion for Chrysler, was frozen out of the talks.
The proposed sale to Cerberus, if it goes through, would mark the end of DaimlerChrysler's turbulent nine-year effort to make a success of an ambitious global expansion strategy pushed by former Chairman and Chief Executive Officer Jürgen Schrempp. Mr. Schrempp rocked the auto industry in 1998 with his deal to buy Chrysler, which at the time was at a high point in its profit and product cycle.
Billed at the time as a "merger of equals," the marriage of Daimler's Mercedes-Benz luxury-car operations and Chrysler's portfolio of pickups, sport-utility vehicles, large sedans and minivans never delivered the synergies that Mr. Schrempp and his successor, Dieter Zetsche, argued it could. Instead, Chrysler's performance see-sawed from losses to profits to, most recently, losses again. For 2006, Chrysler Group had a loss of $633.3 million on revenue of $63.6 billion.
Mr. Zetsche, who led a Chrysler turnaround effort from 2000 until shortly before he became the parent company's CEO in 2006, at first resisted calls to sell Chrysler after the U.S. unit stumbled back into the red last year. But shares of DaimlerChrysler surged after he acknowledged in February that it was considering selling Chrysler, and the move to unload the U.S. auto maker gathered momentum.
Cerberus was viewed as a strong contender to buy the company because of its deep pockets and the potential synergies to be had by marrying Chrysler's Chrysler Financial arm with Cerberus's 51% stake in GMAC, the former financing arm of GM. Cerberus could slash costs by consolidating Chrysler Financial and GMAC, analysts and deal makers say.
Cerberus has invested in various auto-parts makers, including the German company Peguform, which manufactures interior and exterior plastic parts for the auto industry. Earlier this year, Cerberus strengthened its hand further when it hired Mr. Bernhard, the former Chrysler operating chief, as an adviser. Mr. Bernhard, viewed as a hands-on manager, is highly regarded by his former Chrysler colleagues.
Cerberus, which is based in New York, made its name in the 1990s and earlier this decade as a buyer of bad loans around the world, foreclosing or settling the debts at a profit through hard-nosed tactics. Then it slowly moved into buying whole companies in countries like Germany and Japan that were struggling with high costs or bloated work forces. After acquiring these companies, it swiftly slashed costs, laid off workers and closed factories, shifting production to lower-cost spots in Asia. Though many industries in the U.S. and Europe are making similar moves, buyers like Cerberus typically make profits by drastically speeding up the process.
Over the past couple of months, Chrysler officials have been asked by potential buyers like Cerberus for details and potential strategies for the coming UAW talks. One person familiar with the talks said they expected the groups vying for Chrysler would seek a provision tying an acquisition to certain concessions by the UAW.
The key to the deal will be what happens to Chrysler's $18 billion in pension and health-care liabilities. The UAW and Detroit auto makers like GM have been studying a recent deal at Goodyear Tire & Rubber Co., in which the United Steelworkers union agreed to let Goodyear shift $1.2 billion in future health-care liabilities to a fund managed by the union. In return, Goodyear contributed $1 billion in cash and Goodyear stock to the fund. Getting a Goodyear-like deal from the UAW in this year's talks would be especially important at Chrysler because it could mean that neither DaimlerChrysler nor the purchaser of Chrysler would have the multibillion-dollar liability on its books.
Given the auto industry's history of pattern bargaining, whatever arrangement the UAW reaches with Chrysler, other auto makers will likely demand similar terms. That could have major consequences for the union. Sean McAlinden, chief economist and vice president for the Center for Automotive Research in Ann Arbor, Mich., said he expects union contract negotiations this summer to be long and arduous.
"If the union gave something to Chrysler, GM and Ford would demand it immediately, so this is not just about Chrysler," Mr. McAlinden said.
If UAW President Ron Gettelfinger refuses to give in on concessions as he did last year with Chrysler, any agreement with a buyer could fall through. But that could put thousands more union jobs at risk because it would leave Chrysler little choice but to cut its work force deeply.
With a private-equity owner, Chrysler would likely continue to expand its assembly-plant capacity outside North America, putting more pressure on the UAW and the Canadian Auto Workers union, people familiar with the matter said. Chrysler's new owners would inherit a recent agreement by DaimlerChrysler to build small Chrysler cars in China with Chery Automobile Co.
Another issue is that Chrysler, like its Detroit rivals, has too many dealers. A new owner would likely take more drastic action to weed out some of Chrysler's 3,700 dealers, with some proposals calling for a 30% reduction in the dealer network, according to people familiar with the matter.
Because of franchise laws, auto makers can't force dealers to close, and buying them out is costly. GM spent $2 billion to eliminate dealers to get rid of its Oldsmobile brand.
Write to Gina Chon at email@example.com, Jason Singer at firstname.lastname@example.org, Dennis K. Berman at email@example.com and Jeffrey McCracken at firstname.lastname@example.org
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