Cerberus offers to give up stake in Chrysler

[DainBramaged]

In brighter times, Cerberus Capital Management LP hoped to save Chrysler LLC, which it called an American automotive icon. Now the private-equity firm is offering its entire equity stake in the automaker to labor and creditors to help Chrysler secure its $4 billion portion of a federal loan package.

Cerberus said it was making the offer to help Chrysler "make the accommodations necessary to affect the restructuring" of the company. Under the federal loan announced Friday by President George W. Bush, Chrysler needs to swap equity for debt to reduce its debt load and to fund half of its obligation to the UAW Voluntary Employee Beneficiary Association trust with stock.

Cerberus also announced that its Chrysler Financial unit would offer $2 billion to backstop the federal loan, which Chrysler must repay at the end of the first quarter. Cerberus acquired 80.1 percent of Chrysler from Daimler AG for $7.4 billion in 2007.

"Cerberus is really focusing on the lending side of the automobile industry," said Lars Luedeman, head of auto analysis for Grant Thornton in Southfield, Mich., referring to Cerberus's stake in Chrysler Financial and GMAC "They're effectively offering up the automotive side of the operation."

Craig Fitzgerald, analyst for Plante & Moran, in Southfield, said Chrysler's best hope for the future lies with finding a partner or partners "that will cause some of their brands and products to be moved over to competitors."

Cerberus's move to give up its equity stake could help the restructuring, said Kimberly Rodriguez, also with Grant Thornton.

"It's really a pre-packaged bankruptcy without the pre-pack where equity is no longer in control," she said. "It's a cooperative way of handing over your position in a company to help it see another day. It's an industry-supportive move by Cerberus, which is more beneficial to the other OEMs."

Not an ATM

The offer came two weeks after Cerberus had been lambasted in congressional hearings. Sen. Bob Corker, R-Tenn., asked Chrysler CEO Bob Nardelli why taxpayers should fund a Chrysler bailout when Cerberus refused to put any more money in it.

In a statement today, Cerberus responded to that criticism. The company said it manages and allocates capital on behalf of its investors -- including "retirees, teachers, municipal workers and ordinary citizens'' -- and its charter limits how much it can put in any single investment.

Said the statement: "Cerberus is not a deposit-taking institution that can act as an ATM machine for its portfolio companies."

http://www.autonews.com/apps/pbcs.dll/article?AID=/20081220/ANA02/812190289/1142 (subscription only)

[Jacobin]

1. How generous

"Here. You can have all of my stock in this worthless company that has zero value. I'm a hero"

[pa28]

2. They must see the potential for some kind of clawback or liability.

The idea that they would hand over their equity stake if it was actually worth anything is laughable. Daimler could taste the doom when they effectively handed over Chrysler to Cerebus and now the slightly dumber Cerebus is attempting the same thing. Hey! Everybody knows those investment banking firms are all about the public interest. :crazy:

[fujiyama]

3. Chrysler is a hot potato

Not surprising. They have no products worth buying currently and nothing down the pipeline. Their quality is by far the worst of the three domestic automakers, and what's worst is that they have shown no improvements either.

Chrysler in many ways deserves to fail as a company and I think the few billion they have got from the government is simply delaying the inevitable. I don't know who would want a stake in the company. The only division they may get something over is Jeep, but as some have said even that name brand has taken a hit as they simply re-badged Dodge vehicles.

Daimler was smart to cut their losses when they did (though only after they themselves effectively destroyed Chrysler in many ways). What a mess and truly devastating for the thousands of employees effected by this.