Cerberus...not Cerebral, but Sure is Shrewd

On May14, 2007, Daimler announced that "Cerberus Takes Over Majority Interest in Chrysler Group and Related Financial Services Business for EUR 5.5 Billion ($7.4 billion) from DaimlerChrysler."

According to Daimler's web site, the main aspects of the deal were as follows:

• Affiliate of Cerberus to acquire 80.1% equity interest in new company Chrysler Holding LLC; DaimlerChrysler AG to retain 19.9%
• Obligations for pensions and healthcare costs to be retained by Chrysler companies
• Transaction expected to result in net cash outflow of EUR 0.5 billion for DaimlerChrysler
• Ron Gettelfinger, President of the United Autoworkers (UAW): "The transaction with Cerberus is in the best interests of our UAW members, the Chrysler Group and Daimler. We are pleased that this decision has been made. Because our members and the management can now focus entirely on the development and manufacture of quality products for the future of the Chrysler Group."
• John W. Snow, Chairman of Cerberus Capital Management, L.P.: "We welcome Chrysler into the Cerberus family of companies and believe Cerberus will be a good home for Chrysler. Cerberus believes in the inherent strength of U.S. manufacturing and of the U.S. auto industry. Most importantly, we believe in Chrysler." Snow continued: "We would like to thank DaimlerChrysler for their good stewardship of this American icon over the last decade. We are aware that Chrysler faces significant challenges, but we are confident that they can and will be overcome. A private investment firm like Cerberus will provide management with the opportunity to focus on their long-term plans rather than the pressures of short-term earnings expectations."

Structure of the transaction

An affiliate of private equity firm Cerberus Capital Management, L.P., New York, will make a capital contribution of EUR 5.5 billion ($7.4 billion) in return for an 80.1% equity interest in the future new company, Chrysler Holding LLC. DaimlerChrysler will hold a 19.9% equity interest in the new company. Chrysler Holding LLC will hold 100% each of the future Chrysler Corporation LLC, which produces and sells Chrysler, Dodge and Jeep® vehicles, and the future Chrysler Financial Services LLC, which provides financial services for these vehicles in the NAFTA region.

Of the total capital contribution of EUR 5.5 billion, EUR 3.7 billion will flow into the industrial business (Chrysler Corporation LLC) and 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.

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.

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. The pension plans are significantly over-funded at present.

THE "BOTTOM" OF THE STORY

Daimler bought Chrysler for $36 Billion in 1998.
In August 2007 Daimler "sold" 80.1% of Chrysler to Cerberus, headed by John Snow, Dan Quayle, and others.
Daimler assumed the debt of Chrysler- it transferred assets free of debt to Cerberus.
Daimler effectively paid EUR 0.5 billion (approx $700 million) to GET RID OF Chrysler.
In its latest report, Daimler values its 19.9% stake in Chrysler at EUR 0.

Cerberus thought it had an easy home run....cut costs, and sell the company. It has cut, of course, with the Home Depot destroyer Nardelli at the helm. But the auto industry is in dire straits.
Now John Snow, Quayle, and other immoral tycoons are asking the government to bail out Chrsyler- essentially cover Cerberus on its mistake and give the latter its investment and a tidy profit. The NYT article "Chrysler’s Friends in High Places" documents the efforts by these folks to get money from the government, via their pals Hank and Ben.
Obama does not seem to have the guts to say No to this sacrilegious action.