DaimlerChrysler yesterday paid $650 million (€480 million) to unwind its $35 billion tie-up with Chrysler, as the most high-profile transatlantic deal ever ended with the sale of the iconic US carmaker to private equity.
Cerberus, the US private equity group, will pay $7.4 billion, but most of that will be injected as new equity into the separated Chrysler group. Daimler will retain a 19.9 per cent stake, but will end all responsibility for the $17.5 billion in unfunded healthcare liabilities that had worried investors.
"The outcome is very good for Daimler shareholders," said Stephen Cheetham, analyst at Sanford Bernstein. The share prices of the other big US carmakers - General Motors and Ford - rose in anticipation. Investors are excited by the prospects of a private equity-backed Chrysler taking a tough line in negotiations with the UAW trade union this summer, although Ron Gettelfinger, head of the UAW, welcomed the deal as the best for "our members, the Chrysler group and Daimler".
However, the Canadian auto-workers' union said the deal was "very worrisome".
Tom LaSorda, head of Chrysler, will keep his job, while Wolfgang Bernhard, a former Chrysler chief operating officer, will advise him in his role as a consultant to Cerberus.
The move marks the end of the 1998 tie-up that was hailed as a "marriage in heaven" that would change the face of the automotive industry.
But Chrysler went through three financial crises, causing Daimler to lay off more than 40,000 workers.
John Snow, the former US treasury secretary and chairman of Cerberus, said: "Our approach is fundamentally long-term. Sometimes companies can do better outside the requirements of quarterly reporting."
Under the deal, Daimler will get $1.35 billion from Cerberus but will contribute $2 billion to the new company. It will also no longer have obligations for the $29 billion pension liabilities.
"Cerberus is the right strategic buyer for Chrysler, with a long-term commitment to Chrysler's growth and success.
"They are committed to working constructively with both union leadership and Chrysler's management team to help Chrysler realise its full potential," Tom LaSorda said.
The deal will not trigger any job cuts beyond the 13,000 Chrysler announced in February, when it unveiled a $1.5 billion 2006 operating loss, as customers, spooked by high fuel prices, fled its lineup of pickup trucks and sport utility vehicles.
The deal breaks up a product line-up that yoked American mass-market brands Jeep, Dodge and Chrysler with Germany's premium Mercedes-Benz, luxury Maybach and Smart minicar brands at a time of wrenching restructuring for the US auto industry.
The German company - whose name will revert to Daimler AG if shareholders approve - is expected to see a a cut in its 2007 net profit of €3 billion - €4 billion.
"One of the great parts of uncertainty surrounding Daimler is now not so uncertain," said Nomura analyst Michael Tyndall.
