Wednesday, May 23, 2007

Cutting up DCX not a done deal

A few details remain before Chrysler sold

The selling of Chrysler is not a done deal -- yet.

Cerberus Capital Management will spend the next few weeks -- if not months -- finalizing the deal, conducting further double-checking and settling details before signing on the dotted line to acquire the Chrysler Group from DaimlerChrysler AG.

Cerberus appears to be pushing hard for an early July closing date, a move that could remove a layer of complications from upcoming labor negotiations with the UAW.

"You've got to check everything out. It's just like a home inspection," Chrysler spokesman Jason Vines said. "They looked at the basement, didn't see any leaks. Noticed the roof is pretty solid, but there are a few rooms they probably want to look at."

DaimlerChrysler Chief Executive Officer Dieter Zetsche has referred to Chrysler-Cerberus as a mature deal, indicating that it is far along in the process. Cerberus officials have occupied temporary space on the 15th floor of the Chrysler tower in Auburn Hills, meeting with executives and labor leaders in recent days.

No one is saying the Cerberus-Chrysler deal is likely to fail; rather they note that it is not final yet and that some deals do not get done.

"Something extraordinarily unusual would have to happen to make this deal fall apart," said Joe Phillippi, an industry analyst.

Last week, the DaimlerChrysler supervisory board agreed to the concept of the deal, which involves Cerberus spending $7.4 billion to acquire 80.1% of Chrysler.

The due diligence process typically involves looking "at every dimension of the business," said David Cole, chairman of the Center for Automotive Research.

"They have done a reasonable level of due diligence up to this point to put together their initial offer," Cole said. "Now they go in much more deeply and talk to people all throughout the company: They're into the technology, the labor agreement, the plants. ... They want to nail that down very, very tightly."

Usually Wall Street firms, such as Cerberus, insist on escape clauses in deals for such events as a dramatic economic downturn, Phillippi said.

This could explain why DCX picked a buyer that could make a deal happen quickly.

Time is also ticking away before official talks begin in July between Detroit automakers and the UAW. The current contract ends in September.

The only official word from DaimlerChrysler about when the deal could be done is the third quarter. On WJR-AM last week, Chrysler CEO Tom LaSorda seemed to indicate parties are shooting for July when he said, "In about two months or so, we go private."

A company insider indicated the company hopes for an early July closing, but Vines emphasized that no official date has been set.

"There is a lot of legal wrangling that has to happen," Vines said. "There is a push to get it done as fast as humanly possible."

Gerald Meyers, University of Michigan business professor and former CEO of American Motors, doubts the deal can be closed by July.

"This is a very complex deal," Meyers said, in large part because of labor issues.

"If they fail to get the concessions that make their numbers work, then there is going to be a great deal of unhappiness," Meyers said. "If that negotiation doesn't go well, that will put a cloud over the whole thing."

Zetsche has said the Cerberus-Chrysler deal is not contingent on a deal with the unions, but Cole said labor issues loom for Cerberus.

"When you get into due diligence and you get into the real facts of the situation, those issues are going to be there," Cole said.

"In business, lying is one of the things you do all of the time. There are things you can't talk about," he added. "There are things you just either from a legal standpoint or from a political standpoint, you can't talk about."

Longtime observers like to point out the proposed deal by Ford Motor Co. to acquire Daewoo Motor in 2000 after it beat out other automakers, including General Motors Corp., to snatch the South Korean carmaker out of bankruptcy.

After topping other competitors with a $6.9-billion offer in the summer of 2000, Ford pulled out a few months later. About a year later, GM bought a controlling interest in Daewoo for $400 million.

Mergers and acquisitions expert Brian Krasicky of O'Keefe & Associates, said hurdles that arise at this point in a deal tend to be "things like unexpected and undisclosed liabilities."

But, he said, "I expect the deal to close regardless of the hurdles because Daimler appears to be a very motivated seller."

Chrysler, meanwhile, is trying to go about business as usual.

Mike Aberlich, a Chrysler spokesman, said officials are working on how the company will operate without Daimler.

"We are going to have to begin looking organization by organization and operation by operation," he said.

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