Cerberus: Sale reports false

Company denies it sold off equity stakes in its GMAC, Chrysler units.

David Shepardson / Detroit News Washington Bureau

WASHINGTON — Cerberus Capital Management LP denied reports Monday that it had sold equity stakes in Chrysler LLC or GMAC — but didn’t deny it had sought new money from its investors.

The Financial Times had reported that Cerberus sold more than half of its equity stake in the two companies for more than $1 billion to 90 outside investors.

"Cerberus has not reduced or made any changes to its equity stakes in GMAC or Chrysler since the closing of either transaction," said a Cerberus statement released Monday. "Cerberus continues to have voting control over both investments. It is common knowledge, and has been widely reported, that Cerberus made these investments side-by-side with its co-investors at the time of closing. Our commitment to these companies has not changed."

Chrysler chairman and CEO Robert Nardelli said on May 23 that Cerberus wasn’t backing away from its significant investments in Chrysler and the auto sector — despite the past year’s rapid deterioration in auto sales and consumer confidence.

"We’ve got a great relationship," Nardelli said, noting that Cerberus still entrusted day-to-day responsibility for Chrysler to him and his co-presidents, Jim Press and Tom Lasorda.

"Any strategic alternatives are being handled by (Cerberus.) I’m not distracted," Nardelli said.

The Financial Times reported that Cerberus recently invited about 50 hedge funds to its Park Avenue office in New York for a presentation by its chief administrative officer, Seth Plattus, fueling speculation that the company was seeking new capital. Chrysler officials on Monday referred questions to Cerberus.

Cerberus acquired 51 percent of GMAC from General Motors Corp. for $7.4 billion in 2006 as head of a consortium of investors.

Cerberus also purchased 80.1 percent of Chrysler LLC from Daimler last August. In both deals, outside investors put up money to take part in the deals, but Cerberus is still calling the shots.

Cerberus agreed in 2007 to buy the assets of Tower Automotive, a bankrupt supplier in Novi, for $1 billion. In 2006, it purchased North American Bus Industries and Blue-Bird Corp.

In a Jan. 22 letter to investors, Cerberus chief Stephen Feinberg wrote that its Chrysler investment "is by no means without significant risks."

But he said he believed Cerberus bought the company cheap. "Solid blocking and tackling and reasonable execution should be enough to earn a solid return," he wrote.

It’s unlikely that Cerberus is taking steps to unload either Chrysler or GMAC, said Steven Davidoff, a corporate law professor at Wayne State University who studies Cerberus. The nature of private equity, however, makes it impossible to know exactly what the reported moves mean.

Most likely Cerberus sold portions of its investments shortly after it acquired stakes in each company, as is common, Davidoff said. "Even a fund as large as Cerberus wouldn’t want to have an investment as large as Chrysler dominate any one of their funds," he said, adding that "sidecar" deals are intended to spread investment risk.