DaimlerChrysler Closes Sale of Chrysler to Cerberus

By Jeff Bennett

Aug. 3 (Bloomberg) -- DaimlerChrysler AG completed the sale of an

80.1 percent stake of Chrysler to Cerberus Capital Management LP,

ending a nine-year partnership and restoring Chrysler as a stand-alone

U.S. automaker.

DaimlerChrysler, to be renamed Daimler AG, said in a statement

today it will take on $1.5 billion in debt to support the sale and keep a

19.9 percent stake in the U.S. company. The third-largest U.S.-based

carmaker, based in Auburn Hills, Michigan, will operate its auto

operations as Chrysler LLC.

``It was an ill-fated partnership that didn't seem to make sense then

or now,'' said Pete Hastings, a fixed-income analyst at Morgan Keegan

& Co. in Memphis, Tennessee, referring to the 1998 ``merger of

equals'' that created DaimlerChrysler. ``It's good that both are going

their separate ways.''

The transaction unwinds the German company's $36 billion

combination with Chrysler in 1998. Buyout firms such as New York-

based Cerberus are investing in the U.S. auto industry in a bet that

they can revive struggling companies. Cerberus on July 31 completed

a $1 billion purchase of Tower Automotive Inc., taking the maker of

vehicle frames out of bankruptcy.

Cerberus, led by former U.S. Treasury Secretary John Snow, is

investing $7.4 billion in Chrysler, which is shedding most ties to its

former parent while rivals step up development of vehicles on a

global scale. Competitors are speeding new-model introductions

while U.S. consumers are embracing cars and trucks made by Asian

companies such as Toyota Motor Corp.

``We are excited about realizing this monumental opportunity to help

bring an American automotive icon back to a path for profitability and

long-term success,'' Snow said in a statement. Chrysler traces its

history back to 1925.

Auto-Unit Loans

The $1.5 billion in debt DaimlerChrysler will assume is part of $2

billion of second-lien loans to Chrysler's auto unit that the Stuttgart,

Germany-based company and Cerberus agreed to hold after investors

balked at taking it on. Banks led by JPMorgan

Chase & Co. are taking on the remaining $10 billion. Investors have

purchased $8 billion in loans to Chrysler's financing unit.

DaimlerChrysler said it has the right to sell the seven-year loan after

one year.

The ``financing support is a strong sign of its overall determination to

make sure that, under the majority of Cerberus, Chrysler has a good

start as a successful stand- alone car company,'' DaimlerChrysler said.

Details on the effect on DaimlerChrysler's financial statements will be

discussed Aug. 29, the German company said. Shareholders will vote

on the company's name change Oct. 4.

`Great Relief'

``It's a great relief to the market that the deal has gone through,'' said

Stephen Cheetham, an analyst at Sanford C. Bernstein in London. ``It's

not the end of the world that they've had to give them this loan.

Daimler has the capacity on its balance sheet. Sure it's a risky loan,

but even if they lose the money, it's still a great deal to get rid of

those liabilities.''

The U.S. Pension Benefit Guaranty Corp. said an agreement

announced in May goes into effect today, calling for Chrysler to

contribute an extra $200 million to its pension funds during the next

five years and for Daimler to provide a $1 billion guarantee to be paid

if the plans terminate within five years.

Cerberus will control Chrysler Holding LLC, which includes the

automotive and financing units. Chrysler is in the midst of a three-

year restructuring aimed at cutting 13,000 jobs in North America,

after a $680 million loss last year. The company seeks to build more

fuel-efficient vehicles and increase sales outside a stagnant U.S.

market.

Chrysler and larger U.S.-based rivals General Motors Corp. and Ford

Motor Co. began negotiations last month for a new contract with the

United Auto Workers union.

`Laser-Like Focus'

Tom LaSorda will remain Chrysler's chief executive officer. Former

Chrysler Chief Operating Officer Wolfgang Bernhard, a Cerberus

adviser, will serve as chairman of auto operations, according to a

person with direct knowledge of the plan.

As a private company, Chrysler ``can bring a laser-like focus to our

business and make the long-term investments needed to compete,

free from financial market pressures to generate short-term results,''

LaSorda told employees today in an e-mail.

DaimlerChrysler CEO Dieter Zetsche, who led Chrysler until two years

ago, triggered the sale when he announced in February that ``all

options were on the table.'' That came the same day as the 2006

financial results.

Cerberus won the bidding in May, after proposals that included one

with Magna International Inc., Canada's largest auto-parts maker.

Cerberus also leads a group that bought a controlling stake from GM

in the former General Motors Acceptance Corp. finance unit in

November.

The U.S. shares of DaimlerChrysler fell $2.06, or 2.3 percent, to $89.12

at 4:04 p.m. in New York Stock Exchange composite trading. They

have gained 45 percent this year.