Apparently parent company DaimlerChrysler AG (DC) is so anxious to dump Chrysler (CC) that it has agreed to pay the buyer $1.55 billion to take over the ailing American auto giant. Last week we thought the Russians were coming. Now, we find out it's Wall Street blue suit types who look to be poised to take over at Chrysler.
The takeover deal requires the new owner, Cerberus Capital Management (CCM), to pony up more than $6 billion to beef up the bank account of the Chrysler operation, including its financing division, according to Reuters news. That's not to buy the corporation . . . that's just to make the accounting books look good.
To grease the skids on the deal, Daimler agreed to transfer $1.55 billion to the Chrysler bank accounts just so it can jump ship from its nine-year-old failed merger. They paid $36 billion to acquire Chrysler back in 1998.
In exchange, Cerberus Capital Management gets an 80.1 percent stake in a more solvent Chrysler business. Chrysler’s main union, the United Auto Workers, is cautiously giving a thumbs up to the proposal.
Chrysler Chief Executive Tom LaSorda said the deal would not trigger job cuts beyond the 13,000 the company announced in February, when it unveiled a $1.5 billion 2006 operating loss.
Reports are that out of Cerberus’ $7.4 billion commitment, $6.05 billion will be dumped into Chrysler — $5 billion into auto operations and $1.05 billion into its finance arm. Cerberus will also pay $1.35 billion to Daimler, which in turn is loaning $405 million to Chrysler.
DaimlerChrysler, a German company whose name will change to Daimler AG if shareholders approve, will contribute $880 million to cover long-term liabilities at Chrysler. It also agreed to transfer Chrysler’s Auto business free to debt, saying that would mean a net cash cost of $680 million from the sale.
Chrysler's brands, the Jeep and Dodge and Chrysler brand, will stay with Chrysler. The German company's premium brands, however, will stay with Daimler. That's Mercedes-Benz, the luxury Maybach and the Smart minicars.
Cerberus is a New York-based private investment fund that has become a big player in the hedge-fund business. Going back to a lesson learned a decade ago, they are reputed to have hired Wolfgang Bernhard to be an advisor on the deal. He's the guy who helped turn Chrysler around earlier this decade.
So when you call up the 800 number for warranty help, I guess you'll get a blue suit that wants to sell you stock. The whole thing sounds like a shell game to me. If you get a lemon, and that's what it begins to sound like to you too, call us. We know what to do about it.