Cerberus Capital To Buy 80% Chrysler Stake for $7.4 Billion; Shares Climb

DaimlerChrysler announced it is selling 80.1% of its North American Chrysler group to private equity firm Cerberus Capital Management for $7.4 billion. Daimler will drop 'Chrysler' from its name, despite the fact it is maintaining 19.9% ownership in Chrysler. Chrysler group President and CEO Tom LaSorda released a statement Monday morning saying, "We are confident that this transaction will create a standalone Chrysler that is financially stronger... Cerberus is the right strategic buyer for Chrysler, with a long-term commitment to Chrysler's growth and success." According to a statement on DaimlerChrysler's home page, "Obligations for pensions and healthcare costs [will] be retained by Chrysler companies." Surprisingly, the United Auto Workers union has also backed the deal (despite previous objections to a Chrysler sale) saying, it's "in the best interests of our UAW members, the Chrysler Group and Daimler.'' The deal is not expected to be completed until the third quarter and will end up in a cash outflow of $650 million for Daimler due to restructuring costs. Daimler also will grant a loan of $400 million to Chrysler and make an $878 million pension prepayment compensation, resulting in a total profit loss of between $4.1 billion and $5.4 billion in 2007. Cerberus beat out the private equity tandem of Blackstone and Centerbridge Capital Partners as well as auto parts maker Magna in securing the deal. DaimlerChrysler shares rose to $86.76, gaining $4.76, or 5.80%, in pre-market action Monday.

Sources: DaimlerChrysler Announcement, Press Release, MarketWatch, Wall Street Journal, Bloomberg, AP
Commentary: Magna Only Wants 'Partial' Chrysler Stake; Russian Billionaire Hops On Board • Chrysler Roundup: Second Round of Bids Due; UAW Opposes Sale • Note to US Auto Manufacturers - Adapt or Die
Stocks/ETFs to watch: DaimlerChrysler (DCX), Magna International (MGA). Competitors: General Motors (GM), Ford (F), Toyota (TM), Honda (HMC), Nissan (NSANY)
Related: Cerberus Home Page • DaimlerChrysler Top Stories

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