Cerberus close to clinching Chrysler deal

DaimlerChrysler is very close to selling its Chrysler division, with Cerberus, the US private equity firm, in pole position to buy the American carmaker.

People familiar with the talks aid an announcement was likely on Monday, but could come later in the week. The deal has to be ratified by Daimler’s supervisory board, which is due to discuss the matter on Monday along with first-quarter results, which will be released on Tuesday. They warned that the situation was “fluid” and, because no deal had been signed, there was a chance that Canadian supplier and car assembler Magna could come back into the running.

A sale of Chrysler would mark the end of perhaps the most high-profile transatlantic merger. But Daimler is likely to keep a minority stake in Chrysler, whoever wins. If Chrysler were sold to Cerberus, it would be one of the biggest names to fall into private equity hands. The risk to the firm’s reputation would be huge because the carmaker is losing money and has struggled in recent decades.

It is unclear how much the private equity group would pay for Chrysler. Billionaire Kirk Kerkorian last month offered $4.5bn for the division, slightly below other rumoured bids. However, under the deal with Cerberus, Daimler would move Chrysler’s more than $10bn worth of healthcare liabilities off its balance sheet – a key goal for selling the division.

But whatever the price paid for a stake in the US carmaker, it will value Chrysler at far less than the $35bn Daimler paid in 1998 in what was at the time billed as a “merger of equals”.

If Cerberus wins the battle for Chrysler, it is likely to keep existing management in place, led by Tom LaSorda – at least for the time being.

“It is never 100 per cent before you sign it. But it is very likely that it will happen in the next 48 hours that the deal will be signed in favour of Cerberus,” said one person involved in the talks.

A second person said: “It is like buying a house. The seller has a preferred bidder and both sides presume it will go ahead. But something could happen and let in the second bidder.”

Cerberus has been in more detailed talks in recent days than the two other bidders – Magna as well as a consortium of private equity groups, Blackstone and Centerbridge, who are thought to have little chance.

A third person close to negotiations said Cerberus was in “pole position”. Cerberus has two particular trumps: one is the presence of Wolfgang Bernhard, the well-regarded former chief operating officer of Chrysler, as an adviser; the other is the 51 per cent of GMAC, General Motors’ financing arm, that it bought last year as the head of a consortium.

Late last week Magna was still playing up its chances of taking a stake in Chrysler.

All parties declined to comment on a possible sale. Daimler said “all options were still open” and that talks were continuing.

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