Chrysler slipping from Magna

By From canada| May 14 2007
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The Wall Street Journal reported on its Web site Sunday that private equity firm Cerberus Capital Management LP is expected to be the winning bidder for Chrysler and an announcement may come Monday.

DaimlerChrysler AG will get "a substantial payment" and get rid of US$18-billion of Chrysler's pension and health-care liability owed to the carmaker's United Auto Workers employees, according to the report. But it also said that the bidding process could change until an agreement is formally signed.

Magna spokeswoman Tracy Fuerst and Cerberus spokesman Peter Duda both declined comment Sunday.

Magna, which put together a bid for Chrysler alongside conglomerate Onex Corp., appeared to be the front-runner as recently as last week because of perceived union support.

But Cerberus was also seen as a strong candidate as well because of its deep pockets and the fact that it holds a 51% stake in GMAC, the financing arm of General Motors Corp. Cerberus could create synergies by merging Chrysler's financial unit with GMAC, according to the Journal.

Chrysler Chief Executive Officer Tom LaSorda would run the company, while former Chrysler Chief Operating officer Wolfgang Bernhard -- who was brought in by Cerberus -- would have a board seat, the report said. DaimlerChrysler is expected to keep a minority stake.

The news was disappointing for Canadian Auto Workers president Buzz Hargrove, who doesn't like the idea of a private equity firm running Chrysler.

"They're going to be cutting and slashing and selling off [assets] either in pieces or in whole," he said. "They're not in to build the business in the long-term, and that really troubles me."

Mr. Hargrove expects cutbacks partly because of the involvement of Mr. Bernhard, who earned a reputation as an aggressive cost-cutter when he worked at Chrysler. "My guess is that's why he's there. He'll be the hatchet man," Mr. Hargrove said.

Magna was viewed as the likely winner of the bidding specifically because it appeared to have the support of both the Canadian Auto Workers and United Auto Workers unions. Mr. Hargrove said the CAW preferred that Chrysler be passed to someone else in the auto industry, and only Magna fit that bill. Magna chairman Frank Stronach also stressed that he was committed to co-operating with the unions and saving jobs.

The other bidders for Chrysler included billionaire Kirk Kerkorian's Tracinda Corp., which offered US$4.5-billion in cash, and a joint bid between private equity firms Blackstone Group and Centerbridge Capital Partners. Mr. Kerkorian, however, was frozen out of the talks.

Analysts have speculated that Chrysler could draw bids worth anything from US$4-billion to US$10-billion. But the key to the deal, according to the Wall Street Journal, isn't the headline price but the US$18-billion in pension and health liabilities, which Daimler is looking to get off its balance sheet.

Daimler-Benz bought Chrysler for US$36-billion back in 1998. Its performance has fluctuated dramatically since then, and the European shareholders began to tire of the continued recent losses. Chrysler posted a loss of US$1.5-billion last year.

Cerberus has been on the hunt for automotive acquisitions for some time. It struck a deal to buy a 51% stake in GMAC a year ago, and was involved in a US$3.4-billion bid to buy auto parts maker Delphi Corp.

The massive fund holds interests in companies around the world that generate approximately US$60-billion in annual revenue.

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