DaimlerChrysler AG sells Chrysler for $7.5 billion

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mb240

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From The Wall Street Journal:

DaimlerChrysler AG announced Monday a deal to sell a controlling stake in Chrysler Group, Detroit's No. 3 auto maker, to private-equity firm Cerberus Capital Management LP.

The German-American auto maker said in a statement that an affiliate of Cerberus will acquire 80.1% in the new Chrysler Holding LLC, while DaimlerChrysler will keep a 19.9% stake. It said that obligations for pensions and health-care costs would be retained by the Chrysler companies.

Link: http://online.wsj.com/article/SB117913164108101758.html?mod=googlenews_wsj

Reuters is reporting that DC shares rose 5.4% based on this news this morning.

Reuters: http://today.reuters.com/news/artic..._RTRIDST_0_MARKETS-EUROPE-SHARES-UPDATE-1.XML

Detroit Free Press: http://www.freep.com/apps/pbcs.dll/article?AID=/20070514/BUSINESS01/70514006/1002/BUSINESS.

DaimlerChrysler AG Official Statement: http://www.daimlerchrysler.com/dccom/0-5-7145-1-858191-1-0-0-0-0-0-11979-0-0-0-0-0-0-0-0.html

I think this is relatively good news. Daimler have made a massive loss on this one, but it is for the better. The new company will be named Daimler AG.
 
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I wonder if we will now see a more European styling\theme with the Mercedes-Benz marque. Has there been American design influence in some of the newer Mercedes models, or is Mercedes-Benz just catering to the large US market with these newer vehicles?

When will we stop using the DaimlerChrysler title? :)

John
 
Glad to hear it. The Chrysler brand has been brining down MB for ages.
 
Excellent news.
 
Up to a point. In cash terms they are actually paying somone to take it away. There will no doubt also be some "interesting" accounting entries concerning the assumption of Healthcare and Pension costs.

Of the total capital contribution of EUR 5.5 billion:

EUR 3.7 billion will flow into the industrial business (Chrysler Corporation LLC)

EUR 0.8 billion will flow into the financial services business in order to strengthen the equity base of both businesses.

DaimlerChrysler will receive the balance of EUR 1.0 billion.

In addition, DaimlerChrysler will grant a loan of EUR 0.3 billion to Chrysler Corporation LLC.[/I]

According to the agreement, upon the closing of the transaction, DaimlerChrysler will transfer the industrial business of the Chrysler Group completely free of debt.

Due to the Chrysler Group’s anticipated negative cash flow until closing in connection with its restructuring plan, the transaction will give rise to a cash outflow of EUR 1.2 billion for DaimlerChrysler.

The overall net cash outflow resulting from the transaction will therefore be EUR 0.5 billion.

In addition, DaimlerChrysler will have to discharge long-term liabilities of the Chrysler Group in connection with the transaction.

This will result in prepayment compensation of approximately EUR 650 million, to be borne by DaimlerChrysler. The usual transaction costs will also be incurred.


All in all the net result per current estimates is that net profits in 2007 will be reduced by EUR 3-4 billion.:eek:
 
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echoes of BMW's sale of Rover .. BMW had to pay to sell too
 
echoes of BMW's sale of Rover .. BMW had to pay to sell too

Indeed. Especially as the most likely exit route for the Private Equity investors is to clean out the dross and sell what is left on to the Chinese at vast profit.
 
Up to a point. In cash terms they are actually paying somone to take it away. There will no doubt also be some "interesting" accounting entries concerning the assumption of Healthcare and Pension costs.

As mentioned above, it has been a costly exercise in corporate globalisation for Daimler AG (can we start calling it that now, much nicer).

Regardless of the cost, or all of the reported conditions of sale, etc., such as Chrysler being sold with the debt being paid off by Daimler, the best part to have been rid of is this:
The Chrysler Group’s financial obligations for pension and healthcare benefits towards its employees and the employees of the financial services business related to the Chrysler Group will be retained by the Chrysler companies.
.
 
What a disaster. What a waste of huge amounts of management time and energy all to no avail. And what a waste of shareholders' money.

And far from leaving Chrysler in good shape for the future it is left having lost $1,500 million dollars last year. In my view few would bet on Chrysler surviving long term in anything like its present form.

The ability of top managers at Mercedes to make abyssmal decisions has few equals. Add to the Chrysler debacle, the complete failure of the Smart Car operation, which has been haemorraging money since its inception, and has now dropped the FourFour and the Sports Roadster to leave it as a one model car firm.

Perhaps now, at last, Mercedes will concentrate on what it can do best -making upmarket luxury cars.

IMO the joke of the day was Dieter Zetsche, the Chief Exec of Daimler Chrysler saying: -
“We have created the right conditions for a new start for Chrysler and Daimler”

 
But it's worse than that. Daimler are retaining ht ePension and Healtchare liabilities, which is what made Chrysler such a bad buy in the first place..

This will continue to bleed profits out of MB for years to come.
 
But it's worse than that. Daimler are retaining ht ePension and Healtchare liabilities, which is what made Chrysler such a bad buy in the first place..

This will continue to bleed profits out of MB for years to come.

I thought "Chrysler group" as mentioned in the press release meant the Chrysler LLC holding company - i.e., that MB will pay off the debt, debt for the transaction and athe 300 million loan, etc., but that the pensions and healthcare will be kept by the Chrysler group.
 
I thought "Chrysler group" as mentioned in the press release meant the Chrysler LLC holding company - i.e., that MB will pay off the debt, debt for the transaction and athe 300 million loan, etc., but that the pensions and healthcare will be kept by the Chrysler group.

Oops, you're right. The private equity firm doesn't want any of that liability..and who can blame them..
 
In hindsight it way a mistake, and IMHO it's best that Chrysler is removed from Daimler.

However nothing is achieved by doing nothing. You have to do something to achieve something.

Whilst the decision to acquire Chrysler may not be their finest hour, and SMART may not have been a run away success, at that time these two ventures were thought to be the right thing to do. I find it difficult to believe that the decisions would have been taken lightly. Hindsight is a wonderful thing.

With regards to SMART, I doubt Daimler have ever seen this as a short-term win - I firmly believe that they're in it for the long game. Partly because having set up SMART some time ago, it will have an established eco-friendly brand if/when a larger-scale migration to cars with more environmentally friendly credentials kicks in.

The other benefit is that the low CO2 output cars built by SMART offsets the the relatively higher CO2 output from the rest of the range - invaluable to a motor manufacturer producing mainly large high CO2 cars, given the looming CO2 targets. Even without profit, if SMART covers it's costs, then it becomes a valuable asset, as it facilitates the continued production of more profitable cars with higher CO2 output.
 
The other benefit is that the low CO2 output cars built by SMART offsets the the relatively higher CO2 output from the rest of the range - invaluable to a motor manufacturer producing mainly large high CO2 cars, given the looming CO2 targets. Even without profit, if SMART covers it's costs, then it becomes a valuable asset, as it facilitates the continued production of more profitable cars with higher CO2 output.

Trouble is it does not cover its costs and has actually lost a fortune. My guess it will be hard put to ever break even with only one model in the range.

Next we shall hear they have sold Smart to a group of financiers from Russia and that Dr Z is delighted to have created a new start for Smart and for Daimler. Well done indeed.
 
The majority of industry insiders always felt that this would end in tears - the rest of the world find it difficult to deal with the unions and associated liabilities in the US that aren't seen elsewhere. However, hindsight is wonderful and if the original idea had worked the rewards would have been spectacular...

From a shareholder perspective (ignoring the initial decision to buy into Chrysler) this is the correct thing to do. The reduction in future liabilities is always appealing and this is reflected in the recent rise in the share price (and rise / volume of trading since the announcement).

The industry will now be interested in looking at how Cerberus will leverage synergies between GMAC and Chrysler Finance which is probably where the PE guys are looking to make the real money (and is where the value in any US automaker is today). Expect some major pain in the manufacturer side soon...
 
Trouble is it does not cover its costs and has actually lost a fortune. My guess it will be hard put to ever break even with only one model in the range.

It will surely be much harder to break even now they are having to buy the engines for the new Smarts from Mitsubishi!
 
The majority of industry insiders always felt that this would end in tears - the rest of the world find it difficult to deal with the unions and associated liabilities in the US that aren't seen elsewhere. However, hindsight is wonderful and if the original idea had worked the rewards would have been spectacular..

First, if the majority of industry insiders 'always felt that this would end in tears' then they had foresight, not hindsight.
Second, given that GM and Ford were on the verge of bankruptcy, why did anyone think the 'rewards would have been spectacular'? It was never on.
Thirdly, why did a firm that had built a factory to make the ML in the USA and produced a product that was at the bottom of JD Power year by year feel it could make a great success of Chrysler?

It was never on. It was foolhardy in the face of huge competition from lower cost producers (Toyota etc). It would have been much better to have tried to sort out their own problems at home, get their own costs down and their own reliability up.

And at the same time to divert management time to trying to make a success of Smart as well, talk about a bridge too far!

All just about as foolish as BMW buying Rover.

And the problems at Chrysler barely bare thinking about. Was it sold so someone else could quietly let it die a natural death? If not, the Jeeps now have Mercedes diesels, and the Crossfire is from the Daimler parts bin as is the diesel 300c. Will that continue with Chrysler having Mercedes engines etc and competing with the E class at a much higher price? And Grand Cherokees against ML's? Or will Chrysler be forced to fork out vast sums to develop its own next generation engines? If I were a betting man I would bet that Chrysler will be a shadow of its present self within a decade -or will have folded up and gone.

And as for Smart, the 4x4 Smart has been scrapped, the sports car discontinued and the ForFour discontinued too. Three green bodies have accidentally fallen and there's only one left to go.
 
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