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Ex-DCX engine unit, bought by private-equity firm, is still standing

From detnews| May 11,2007
Ex-DCX engine unit, bought by private-equity firm, is still standing Type the title hereIn the year since DaimlerChrysler AG sold its off-highway engine unit, the operation has increased its sales and headcount, belying the notion businesses sold to private equity firms inevitably get savaged.

EQT Partners, the Swedish private-equity firm that bought the unit and renamed it Tognum Group, announced last month it was acquiring a generator-set maker in Minnesota.

"It's a testament of our owner wanting to further invest in our business," said Ulrich Kemnitz, CEO of MTU Detroit Diesel, a Detroit-based off-highway manufacturer formerly owned by DaimlerChrysler and now part of Germany-based Tognum.

MTU Detroit Diesel is also doubling its salaried work force in Detroit, where it builds big engines for power generators, mining trucks, boats and other large vehicles, to more than 200.

DaimlerChrysler officials point to Tognum and other successful private-equity deals as the company studies offers for Auburn Hills-based Chrysler Group, which the German automaker put up for sale earlier this year.

"In deals we've done in the past with private-equity groups, the main criteria were, 'What does the investor want to do with the company? What is the strategy?'?" said a DaimlerChrysler official, speaking on condition of anonymity.

Among the leading candidates bidding for Chrysler are private-equity firms Blackstone Group and Cerberus Capital Management and Canadian supplier Magna International Inc. Top General Motors Corp. officials also have spoken with DaimlerChrysler about a deal.

DaimlerChrysler's labor representatives, including United Auto Workers President Ron Gettelfinger, who sits on the automaker's supervisory board, are wary of private-equity bidders. They view them as inclined to break firms apart for a quick profit, a perception hardened by the UAW's difficult wage negotiations with Cerberus, a possible buyer of bankrupt supplier Delphi Corp.

But Joe Phillippi, president of AutoTrends Consulting Inc., said private-equity firms are not usually harsher owners. "For the most part, it's not necessarily more brutal. The worst scenario is GM buys Chrysler -- there, you'd see a veritable bloodbath over time."

Although DaimlerChrysler does not have equity in Tognum, it retains close ties. "It's a very amicable relationship," said Bryan Mangum, marketing manager at MTU Detroit Diesel.

MTU Detroit Diesel's 100 or so hourly workers are employed by DaimlerChrysler and represented by UAW Local 163 under the terms agreed to when the automaker sold the off-highway activities in March 2006. "We reimburse Detroit Diesel," the engine business still owned by DaimlerChrysler, "for their expense," Kemnitz said.

MTU Detroit Diesel leases space in a 3 million-square-foot DaimlerChrysler site that straddles Detroit and Redford.

Tognum has about $3.3 billion in annual sales, and business is growing worldwide. In the United States, it has won contracts to supply engines to the U.S. Coast Guard, which is renewing its fleet.

EQT is contemplating an initial public offering for Tognum but hasn't disclosed the timing.

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