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Monday, 14 May, 2007 10:03 PM
Cerberus Takes Over Majority
Interest in Chrysler Group for $7.4 Billion
Cerberus
to acquire 80.1% equity interest in new company Chrysler Holding
LLC; DiamlerChrysler AG to retain 19.9%
STUTTGART, Germany
-- The Board of Management of DaimlerChrysler AG (stock-exchange
abbreviation DCX) has today decided, subject to the approval of
the Supervisory Board and the relevant authorities, on the future
concept for the Chrysler Group and the realignment of DaimlerChrysler
AG. Completion of the transaction is subject to the satisfaction
of customary closing conditions, including the receipt of regulatory
approvals and Cerberus financing arrangements.
An affiliate of private
equity firm Cerberus Capital Management, L.P.,
New York, will make a capital contribution of $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(R) 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 $7.4 billion, $5.0 billion will
flow into the industrial business (Chrysler Corporation LLC) and
$1.05
billion will flow into the financial services business in order
to
strengthen the equity base of both businesses. DaimlerChrysler will
receive the balance of $ 1.35 billion. In addition, DaimlerChrysler
will grant a loan of $0.4 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 $1.6 billion
for DaimlerChrysler. The overall net cash outflow resulting from
the
transaction will therefore be $0.65 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 $878 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 transaction will
have the following effects on DaimlerChrysler AG:
- In total, current
estimates indicate that net profit according to IFRS
in 2007 will be reduced by $4.1-5.4 billion.
- Due to the deconsolidation
of the Chrysler companies and the resulting
reduction in the balance-sheet total, the equity ratio of
DaimlerChrysler's industrial business is expected to increase
to more
than 40% by the beginning of 2008.
- There will be no
changes relating to the bonds issued and guaranteed by
DaimlerChrysler AG. In the financial services business for the
Chrysler, Jeep (R) and Dodge brands, Cerberus will take over the
financing previously provided by DaimlerChrysler AG.
- The 19.9% equity
interest held by DaimlerChrysler AG in the new company
Chrysler Holding LLC will be included after closing at equity
in the
Van, Bus, Others segment.
- The closing of the
transaction is expected to take place in the third
quarter of 2007.
Dr. Dieter Zetsche, Chairman
of the Board of Management of DaimlerChrysler AG and Head of the
Mercedes Car Group: "We're confident that we've found
the solution that will create the greatest overall value - both
for Daimler and Chrysler. With this transaction, we have created
the right conditions for a new start for Chrysler and Daimler."
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."
Business progress
In nearly ten years as
DaimlerChrysler, a lot has been done to move the businesses forward.
The synergies possible between Mercedes-Benz and Chrysler have been
fully utilized. Additional potential for collaboration is limited
between two businesses operating in such different market segments.
The strong volatility and pressure on margins in the Chrysler Group's
North American core market have an increasingly negative impact
on DaimlerChrysler's overall profitability and share-price development.
The Chrysler Group has
made substantial progress in recent years. For example, production
hours per vehicle have fallen from 48 hours in 2001 to just over
30 at present. Quality has improved by more than 40% over the past
six years. Since 2002, more than $10 billion has been invested in
new production facilities and technologies. And with 34 new models
since 2001, Chrysler has one of the youngest product lines in the
industry.
Zetsche: "As a result,
Chrysler today is structurally more sound than its North American
based competitors. And with Cerberus as a partner, Chrysler will
have the best chances of utilizing its full potential."
Ongoing collaboration
Existing projects with
the Mercedes Car Group will be continued, for example in the development
of conventional and alternative drive systems, purchasing, and sales
and financial services outside the NAFTA region. Furthermore, a
Joint Automotive Council will be established in which representatives
of both sides will assess and decide on the potential of new and
current projects. The Council will be led by board-level members
from each company.
Zetsche: "We
very much look forward to our continued cooperation as business
partners, as we want to continue to reap the mutual benefits of
working together. That's one of the reasons why we're retaining
a 19.9% equity position in Chrysler."
New Daimler AG
Due to the new corporate
structure, the name of DaimlerChrysler AG is to be changed to Daimler
AG. A decision on this is to be taken by the shareholders at an
Extraordinary Shareholders' Meeting probably in fall 2007.
The Board of Management
of the new company will be reduced to six members. Tom LaSorda,
Eric Ridenour and Tom Sidlik will leave the Board of Management
with the Group's sincere thanks.
There will no longer
be a separate board position for procurement in the new Daimler
AG. In the future, all procurement activities will be directly coordinated
between the divisions. Within the Board of Management, Bodo Uebber
will additionally assume overall responsibility for procurement.
The leadership teams
of the Mercedes Car Group, the Truck Group and Financial Services
will remain unchanged, as will the teams in the vans and buses businesses.
Zetsche: "We've
done our homework in our corporate functions and in all of our divisions.
As a result of our strategic review, we have a well-defined roadmap
to lead us into a good future."
The Mercedes Car Group
will generate a return on sales of at least 7% this year, with higher
rates to follow in the coming years.
The Truck Group will
achieve an average return on sales of 7% over the cycle as of 2008.
This represents a return on net assets of approximately 30%.
DaimlerChrysler is also
a world leader and profitability benchmark for buses. And in the
vans business, which is performing very well, the new Sprinter will
continue the success story of its predecessor.
The Financial Services
division aims to earn a return on equity of more than 14%.
Growth perspectives
Zetsche: "We
have a strong starting position. We have an above-average financial
power. And our future prospects are promising." The
Group has defined the following main areas for continued growth:
- Further expansion
in the core business, which means in the traditional
segments that are the most profitable and have the highest growth
rates, as well as exploiting new market opportunities on a regional
basis.
- Continued development
of innovative, customer-oriented and tailor-made
services and activities, pursuing opportunities both up and down
the
value chain.
- Strengthening leadership
in sustainable, responsible and
environmentally friendly technologies.
By focusing on these
three areas, Daimler's full potential is to be exploited and enterprise
value is to be increased further through profitable and sustainable
growth. Daimler intends to do this on its own, while continuing
to benefit from opportunities of scale with Chrysler.
Zetsche on Daimler's
goals: "We will be the leading manufacturer of premium
products and a provider of premium services in every market segment
we serve worldwide. And we will pursue our commitment to excellence
based on a common culture, a great heritage of innovation and pioneering
achievements and - with Mercedes-Benz - the strongest automotive
brand in the world."
Cerberus Capital Management,
L.P., New York, is one of the largest private investment firms in
the world, with approximately $23.5 billion under management in
funds and accounts. Founded in 1992, Cerberus currently has significant
investments in more than 50 companies that, in aggregate, generate
more than $60 billion in annual revenues worldwide.
Source: DiamlerChrysler
AG
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