GM backs away from Chrysler bid

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General Motors will not be submitting a first-round bid for Chrysler this week but may enter the sale process later, people close to DaimlerChrysler’s sale of its lossmaking US unit say.

Bids worth $4bn to $6bn are expected to be submitted by Friday to JPMorgan Chase, which is advising DaimlerChrysler on the sale, from at least three private equity groups and Magna International, the Canadian automotive parts and vehicle assembly concern.

GM is not likely to be involved in the first round, but could enter the process as soon as next month after expected bids from Cerberus Capital Management and the Blackstone Group in a consortium with Centerbridge Partners. Ripplewood Holdings may also bid.

Magna, which is a leading supplier of parts to Chrysler and paints or manufactures some of its vehicles, is likely to team up with a private equity group, possibly Ripplewood. Magna has confirmed its interest in Chrysler. The buyout groups in question are not commenting.

GM is maintaining a “watching brief” on the sale process, which it might join once a preferred bidder from the current group was selected, two people familiar with it said.

“They’re still monitoring every twist and turn of the situation but I don’t think they’re going to submit anything formal,” a person close to the carmaker said. “If one of the private equity groups says ‘we see an opportunity’ or ‘we don’t need this or that plant,’ there are parts of Chrysler that would be attractive to GM under the right circumstances.”

GM is understood to have made an offer in January for Chrysler that its German parent, after approaching GM about a possible sale, rejected as too low.

GM could enter in the second phase of the sale in conjunction with a buyout group or on its own.

“GM are still at the table waiting to see who bids,” a second person familiar with the sale said.

Lehman Brothers, in a research note published on Wednesday, said: “GM’s offer is likely still on the table as a fall back for [DaimlerChrysler] if the bids presented later this week were disappointing.”

DaimlerChrysler is hesitant to be seen making an ungraceful exit from Chrysler, which it has struggled to keep profitable since buying it in 1998.

A sale to an industry investor would probably be more politically acceptable than one to
private equity.

Buy-out groups, despite their rapid growth in recent years, have yet to prove themselves on the takeover of a leading motor manufacturer.

Magna, with a largely non-unionised workforce, would probably have fractious relations with the United Auto Workers Union.

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