Robert Sherefkin, David Barkholz and Leslie J. Allen
May 21, 2007 - 1:00 am
After announcing the $7.4 billion purchase of the Chrysler group last week, Feinberg personally assured UAW leaders that Chrysler will not lay off more workers.
The union accepts his pledge. But some are skeptical about Cerberus' prospects with Chrysler. How will a company that invests in paper products, swimwear, real estate, energy and glass making succeed as the owner of a troubled U.S. automaker?
The hedge model is pretty basic. A money manager raises billions of dollars from rich people seeking outsized returns on their investments. The fund hires bright lieutenants to research deals, recruit managers and sometimes operate troubled companies.
So what distinguishes Cerberus from less successful hedge funds? Start with the people. Cerberus' corporate culture mirrors Feinberg's personal attributes: secretive, hard-nosed, fast-moving and willing to take risks - big risks.
An investor quoted in New York magazine described Feinberg, 47, as "a quiet, almost anti-social guy who is a machine at investing."
The machine has taken dead aim at Detroit. Once derided as a "vulture" investor for his focus on troubled companies, Feinberg has given Cerberus new respectability with a series of high-profile purchases.
Before the Chrysler deal, Feinberg's sweetest victory was the acquisition last year of as majority stake in GMAC Financial Services. In doing so, Feinberg defeated one of his big rivals: buyout specialist Henry Kravis of Kohlberg Kravis Roberts & Co.
While keeping his own profile low, Feinberg has brought in high-profile talent to run Cerberus. President Bush's former Treasury secretary, John Snow, is the company's chairman, and former Vice President Dan Quayle is chairman of its global investments unit.
Former Ford of Europe chief David Thursfield runs Cerberus' automotive practice, and former Chrysler COO Wolfgang Bernhard is an adviser. A Cerberus corporate profile hails Bernhard as someone "credited for (the Chrysler group's) impressive turnaround between 2000 and 2005."
Title: CEO, Cerberus Capital Management
Born: Spring Valley, N.Y.
Education: Princeton University, bachelor's degree in politics, 1982
Hobbies: Tennis, motorcycles
Career: Launched Cerberus in 1992
Hard-nosed deal makers
Feinberg's executives are bright, tenacious negotiators. They are formidable players because of their deep pockets, says John Groustra, a partner with the consulting firm Conway MacKenzie & Dunleavy.
"They drive a tough deal, they focus on the economics and always keep that within the framework of the deal they envision," Groustra notes.
Cerberus has had mixed results with its automotive investments. In addition to GMAC, the finance arm of General Motors, Cerberus owns bumper maker Peguform GmbH and textiles supplier Guilford Mills Inc. It is bidding to buy bankrupt supplier Tower Automotive Inc.
But Cerberus wants to dump GDX Automotive, an unprofitable supplier of sealing and acoustic materials. And it has bowed out of a group that is trying to acquire Delphi Corp.
The bottom line: Cerberus' deal makers are willing to take chances, but they will walk away from a deal quickly when it does not make sense - as they did with Delphi. "They will walk away, but not slam the door," Groustra says. "They will sit on the sidelines waiting for a competitor to stumble, and then get back into the game."
The man behind Cerberus is a reclusive Princeton University graduate who prefers working in the shadows of the private equity firm he founded in 1992. He doesn't do media interviews and reportedly hates to travel beyond his simple, unadorned offices on New York's Park Avenue.
Biographical information on Feinberg is difficult to find. According to published reports, he was born in Spring Valley, N.Y. He earned a bachelor's degree in politics from Princeton, where he was captain of the tennis team.
Feinberg is said to be a motorcyclist and a former U.S. Army paratrooper. He has been a big Republican Party contributor.
Feinberg cut his teeth in the financial world working as a trader at the buyout firm Drexel Burnham Lambert during the Michael Milken era of the 1980s.
When Feinberg formed his own firm, he named it in honor of a mythical three-headed dog that guards the gates of Hades. That fledgling company, BusinessWeek reports, started as a hedge fund trading in the debt of companies headed for bankruptcy.
Now Cerberus manages more than $25 billion in assets - not including the Chrysler group.
The hedge fund has no problem raising money. Last year Feinberg's well-heeled investors earned 15 percent after fees, according to Alpha, a hedge fund trade publication. Cerberus is so flush with cash that it is turning away new investors.
And all that cash has made it possible for Cerberus to target the big fish in the pond. After experiments with some of the smaller fry of the auto industry, Feinberg has landed a lunker.
The potential reward is great. But running a company can be a lot tougher than buying it.
"He's making a huge bet on the auto industry at many levels," says Scott Eisenberg, managing partner with the investment banking firm Amherst Partners LLC. "If he wins, he will win big; but he's taking on a lot of risk."