Cerberus `gave us the best offer,' says DaimlerChrysler CEO, plus it agreed to fund long-term pension and health-care costs
Business Reporter
The offer by Cerberus Capital Management for the Chrysler Group is far superior to other bids including one from Canadian corporate titans Magna International Inc. and Onex Corp., industry sources say.
Chrysler's German parent, DaimlerChrysler Group, announced yesterday that Cerberus, one of the largest private equity firms in the world, is taking an 81 per cent stake of the auto maker's North American operations and its related financial services business for $7.4 billion (U.S.).
Chrysler's German parent, DaimlerChrysler Group, announced yesterday that Cerberus, one of the largest private equity firms in the world, is taking an 81 per cent stake of the auto maker's North American operations and its related financial services business for $7.4 billion (U.S.).
"It was substantially higher than the others," said one official familiar with the bids.
Under its offer, Cerberus will also assume Chrysler's long-term liabilities for pension and health-care benefits.
Aurora-based Magna would not comment on any details of its bid but said the company supports the solution that is best for DaimlerChrysler and for Chrysler Group.
One analyst indicated recently that Magna-Onex was a leading contender and would value Chrysler at about $5 billion, excluding Chrysler Financial.
Billionaire Kirk Kerkorian's Tracinda Corp. publicly bid $4.5 billion in cash but industry watchers said DaimlerChrysler was seeking an offer in the $8 billion to $9 billion range. Other equity funds including Blackstone Group in the U.S. also showed interest in Chrysler.
Dieter Zetsche, DaimlerChrysler's chief executive officer, told a news conference that Cerberus's bid topped other suitors in several key areas.
Zetsche said Cerberus gave Chrysler "the best starting point." Its firm deal also released the parent company from liability risks, ended uncertainty for management and employees, and put a higher value on the auto maker than other offers.
"Cerberus gave us the best offer, which made it relatively easy for us to come to a decision," said Zetsche, whose company will keep the remaining 19 per cent.
Magna chair Frank Stronach confirmed last week that his company and partner Onex had made a formal bid for the Chrysler Group.
But yesterday's announcement of a deal and terms surprised Magna and industry watchers who had considered Magna a leading contender because of its operational prowess, financial strength and connections to DaimlerChrysler.
DaimlerChrysler is Magna's biggest customer.
Magna also builds vehicles for Chrysler at a plant in Austria and operates a paint shop at a Jeep factory in Toledo, Ohio.
Furthermore, Magna director Klaus Mangold is a former member of the board of management of DaimlerChrysler. He is currently executive adviser to Zetsche.
However, one source said Onex chief executive officer Gerry Schwartz expressed increasing concern recently about the amount of time DaimlerChrysler was spending with Cerberus.
One of Cerberus's advisers is Wolfgang Bernhard, who was a former chief operating officer of Chrysler Group under Zetsche.
The battle for Chrysler marked a departure for Magna, which prefers to hold talks with an acquisition target rather than compete with other bidders and risk overpaying.
Magna had stressed it wanted to play a role in Chrysler's revival but would only take a minority stake because the auto parts maker didn't want to compete against other major customers such as General Motors Corp. and Ford Motor Co.
In a statement yesterday, Magna said it respects DaimlerChrysler's decision to sell to Cerberus and is confident its mutually beneficial relationships with Daimler and Chrysler will continue.
"Magna is looking forward to working with Chrysler management and Cerberus to ensure Chrysler remains strong," the statement added.
The deal with Cerberus, which should be complete in the third quarter, would end a nine year merger.
Daimler-Benz of Germany took over Chrysler Corp., the third-largest auto maker in North America, for $36 billion in 1998.
The companies described it as "a marriage made in heaven."
But the Chrysler Group's $2.1 billion loss last year put shareholder pressure on management to unload the company.
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