Cerberus pursues all of Chrysler

Automaker’s owner in talks with Daimler to buy out its stake; more options for ventures cited.

David Shepardson / The Detroit News

WASHINGTON — Daimler AG is in talks to sell its remaining stake in Chrysler LLC to majority owner Cerberus Capital Management LP, the companies confirmed Wednesday.

If the negotiations, initiated by Cerberus, are successful, it could be easier for the New York-based private equity firm to pursue other options for Chrysler, including joint ventures, partnerships or an outright sale, experts said.

"We can confirm that we are in talks with Cerberus regarding the redemption of our 19.9 percent interest in Chrysler," Daimler spokesman Han Tjan told The Detroit News.

The German automaker sold 80.1 percent of its stake in Chrysler to Cerberus in August 2007 in a $7.4 billion deal. The move to sell could end Daimler’s association with Chrysler a decade after it bought the Auburn Hills automaker for $36 billion and reshaped the auto industry. Daimler has at least one member on Chrysler’s board of directors, Gerd Becht.

If Cerberus purchased the remaining Daimler stake, the private equity fund would have a freer hand to enter into joint ventures without Daimler’s consent and would also benefit from the fact that Daimler would no longer disclose any financial information about Chrysler, which it now is required to do.

Cerberus spokesman Peter Duda said the New York-based private equity fund "approached Daimler about the possible redemption of its 19.9 percent stake in Chrysler. We are currently in discussions."

He said the firms wouldn’t drop their joint projects even if Daimler sold its remaining stake. The two automakers are working on a number of projects together, including diesel engines.

Chrysler also issued a statement saying that "common projects between Daimler and Chrysler in the areas of research and development and advanced technologies would continue."

Daimler has written down the value of its Chrysler holdings and has disclosed significant losses related to its stake in Chrysler. Chrysler executives told dealers this week the company has lost at least $400 million this year. Chrysler Holdings LLC, which includes the auto company and its finance arm, Chrysler Financial, lost $510 million in the first three months of 2008, the company said in July. Chrysler lost $1.6 billion in 2007.

Chrysler’s sales are down 24 percent through August amid what may be the worst auto market in nearly 20 years.

Efraim Levy, an auto analyst at Standard & Poor’s, said Daimler has little reason to hold on to its stake in Chrysler.

"Given the materially weakened automotive retail environment, sharply lower Chrysler sales volume, and decreased valuation for publicly traded U.S.-based automakers since the 2007 transaction, we think (Daimler’s) Chrysler stake is worth much less now than it was at that time," Levy wrote.

Van Conway, a turnaround expert at Conway MacKenzie & Dunleavy, said Cerberus is likely to get "a bargain purchase price in light of the auto conditions and (the purchase) gives Cerberus more control for some type of strategic move — a sale, a partnership."

It also avoids a potential conflict of interest with a partner and Daimler. But Chrysler officials said they believed no major strategic move was eminent.

Separately, The Detroit News has learned that Chrysler is laying off about 300 salaried workers by the end of the month, with the majority of those expected to get word by the end of the week. A company official confirmed the layoff plans.

In July, Chrysler announced it would trim its salaried work force by 1,000 employees. About 700 employees accepted early retirements or other incentives to leave the company and about 600 had left by the end of August.

Cerberus, which has interests in companies including Air Canada, GMAC, and a company with more than 250 Burger King restaurants, typically invests in companies for a fixed period before selling them. But the company has repeatedly said it is committed to holding on to Chrysler as a long-term investment.