Cerberus takes control of Chrysler -- officially

Private equity firm Cerberus Capital Management has taken control of Chrysler in a $US7.4-billion ($A8.64 billion) deal designed to set the beleaguered 82-year-old automaker on a path to recovery as a private company.

DaimlerChrysler of Germany, which also builds Mercedes luxury cars, agreed in May to transfer an 80.1 per cent stake in Chrysler to New York-based Cerberus. Daimler will retain a 19.9 per cent interest in the company.

"We as Daimler employees have already made our choice. And I am sure the coming years will confirm that we've made the right decision," DaimlerChrysler Chairman Dieter Zetsche said in a letter to Daimler employees.

Chrysler LLC, as the new company will be called, said it would hold a celebration for employees on Monday and will be rolling out a "New Chrysler" campaign through the rest of the year. Chrysler also has a new logo, an updated version of the old five-sided star (pictured).

"This completion of the deal marks the beginning of a historic opportunity for us to build a company that can compete with the best in the world," Chrysler chief executive Tom LaSorda told Chrysler employees in an email.

DaimlerChrysler is to be renamed Daimler AG, according to a statement from the company. Shareholders are expected to ratify that change at a meeting on October 4 in Berlin.

Former Chrysler executive Wolfgang Bernhard, a senior adviser to Cerberus, was expected to be named chairman of the board of directors of Chrysler. LaSorda was to continue to run the company's day-to-day operations.

Although Bernhard frequently has been seen on Chrysler's headquarters campus, Cerberus chairman John Snow has said Cerberus plans to keep the same management team in place and give it the freedom to implement its restructuring plan. Snow has said LaSorda can draw on experience of Bernhard and other Cerberus advisers as he works to restore Chrysler to profitability.

Snow also said with the closing, Chrysler is free of the short-term quarterly earnings pressures that public companies face, since there will be no Chrysler shares. DaimlerChrysler shares will change to Daimler, but otherwise shareholders won't be affected.

The sale ends a stormy nine-year combination of Daimler and Chrysler, which combined in a $US33-billion ($A38.5 billion) deal that was hailed as creating a global giant. Instead, Daimler, like competitors Ford Motor Company and General Motors Corporation, found itself battered by rising pension and retiree health costs in the US. At the same time, Mercedes was stumbling due to quality problems and consumers were turning away from Chrysler's stable of trucks and sport utility vehicles as gas prices spiked.

Chrysler made $US1.8 billion ($A2.1 billion) in 2005 but lost $US618 million ($A721 million) in 2006 and $US1.98 billion ($A2.31 billion) before interest and taxes in the first quarter of this year. DaimlerChrysler didn't report second-quarter earnings for Chrysler because of the impending sale.

The losses brought on the sale and forced Chrysler to announce a restructuring plan that will use buyouts and early retirement offers to shed 13,000 hourly and salaried jobs in the US and Canada by 2009.

Combined Chrysler, Dodge and Jeep sales were down 2.3 per cent overall in the first seven months of 2007, according to Autodata Corp. Jeep was a bright spot, with a 12 per cent increase in sales thanks to the new Jeep Compass crossover and Jeep Patriot, a small sport utility vehicle. Chrysler should get a boost this month when it introduces the redesigned 2008 Dodge Caravan and Chrysler Town & Country minivans, which include a second-row seat that can spin 180 degrees to face backward.

The Cerberus deal was sidetracked last month when bankers marketing a $US12-billion ($A14.01 billion) Chrysler debt sale to major institutional investors ran into turmoil in the mortgage industry that weakened demand for leveraged loans and high-yield debt.

With no investor appetite, seven banks led by JPMorgan Chase & Co. had to keep most of the debt on their books. The banks will front about $US10 billion ($A11.7 billion) as a loan. They could come back to the market after the summer when investors are more active. Cerberus and DaimlerChrysler will fund the other $US2 billion ($A2.3 billion).

As part of the deal, Cerberus agreed to invest $US6.1 billion ($A7.12 billion) in Chrysler and its financing arm and to pay DaimlerChrysler $US1.4 billion ($A1.63 billion). DaimlerChrysler would remain liable for certain expenses that could result in it paying Cerberus up to $US1.5 billion ($A1.75 billion) to complete the transaction.

Cerberus, however, has agreed to take on most of the auto company's approximately $US18 billion ($A21 billion) in long-term retiree health care costs.

Source: AAP 2007

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