Daimler dumps Chrysler

Newswheel staff :: 15 May 2007 :: Filed under Chrysler, Mercedes Benz

[Click on an image to view]

Private equity firm picks up the pieces

The game is up and it’s time to wheel out the euphemisms, chaps. Cue Dieter Zetsche, head honcho of DaimlerChrysler AG: “We substantially overestimated the potential for synergies.” Yup, the Daimler-Chrysler experiment, if you hadn’t already guessed, is no more. Private equity outfit Cerberus Capital Management has agreed to pay 5.5 billion euros ($7.4 billion) for an 80.1% stake in Chrysler…

Unfortunately, most of that cash will never reach Daimler headquarters – 4.5 billion euros will be spent shoring up Chrysler’s precarious financial situation. Only 1 billion euros will be heading sausage side. Whatever, it’s all pocket change compared to the $36 billion Daimler paid for Chrysler back in 1998.

Zetsche, needless to say, put a brave face on the announcement. “With this transaction, we have created the right conditions for a new start for Chrysler and Daimler,” he said, as well he might.

Cost cuts ahoy…

As for Cerberus, it specialises in snaffling up struggling companies and reviving them through aggressive cost cutting (…more euphemisms?). Anywho, it currently has around 50 companies on its books with total revenues over $60 billion. Cerberus, therefore, probably knows one end of a balance sheet from another.

Of course, the upside to private ownership for Chrysler is that it no longer has to pander to the whims of the market. As Cerberus’ chairman John Snow said, "Our approach is fundamentally long term. We don’t think about the next quarter. We don’t think about what analysts have to say about us."

Which is just as well. After losing a ludicrous $1.5bn last year, we imagine those analysts have not been showering Chrysler in flowery prose.

And what about the unions?

The deal has also been backed, reportedly, by the United Auto Workers (UAW) union, with whom Cerberus will inevitably have to tango if Chrysler’s ailing manufacturing business is to succeed. However, according to Reuters news agency, the Cerberus deal was presented to UAW President Ron Gettelfinger as a fait accompli.

A new arrangement with UAW is expected this summer - the scuttlebut says health benefits for Chrysler employees will have to be squeezed if the company is to be made into a goer.

So there it is, an end to the Chrysler affair for Daimler and another failure of a high profile merger of two car companies. We’ll leave minds greater than Newswheel’s to ruminate over the ramifications.

Linkaaaaaage:
Reuters