Can Cerberus Survive the Hole It's Digging?

Would you negotiate a deal with the three headed dog from hell? Cerberus Capital Management, L.P. has failed to complete three of its announced acquisitions in 2007. It failed to do a deal with Affiliated Computer Services (NYSE:ACS), H&R Block's Option One Mortgage (NYSE:HRB), and now United Rentals, Inc (NYSE:URI).

Cerberus is currently taking on huge losses at both Chrysler LLC and at GMAC's Rescap unit and will either have to make additional equity investments or put these companies into bankruptcy. This would not be the first of their portfolio companies to file bankruptcy as Aegis Mortgage, of which Cerberus bought a controlling stake in 1998, filed for bankruptcy in August of this year.

By failing to complete so many of its announced acquisitions in 2007, I believe Cerberus may ultimately hurt itself more than the companies it didn't buy as some companies may refuse to negotiate future offers without some very large non-refundable break-up fees held in escrow.

Disclosure: none

Comments

[youngj:]

I'm not sure it will impact them so significantly. The $100 million breakup fee they paid United Rentals has got to go a long way towards them feeling better about the transaction not going through. If I were a middle market company CEO, I wouldn't mind a 'free' $100 million for my company and a bit of a roller coaster in my stock price.

2007 Dec 27 01:33 PM