DaimlerChrysler to sell majority Chrysler stake

DaimlerChrysler to sell majority Chrysler stake

After months of rumors that DaimlerChrysler will spin off its money-losing Chrysler Group, the company agreed to sell its 80.1% majority stake in its Chrysler Group to Cerberus Capital Management for $7.4 billion

After months of rumors that DaimlerChrysler will spin off its money-losing Chrysler Group, the company agreed to sell a 80.1% majority stake in its Chrysler Group to Cerberus Capital Management for $7.4 billion. The transaction is expected to close in the third quarter, which will leave DaimlerChrysler with a 19.9% stake in the U.S. volume automaker.

The deal effectively dissolves the $38 billion merger of Daimler-Benz AG and the Chrysler Corp. forged back in 1998. As a result of the deal, DaimlerChrysler plans to change its name to Daimler AG.

The divesture of DaimlerChrysler’s majority Chrysler stake will give the German automaker more leverage to focus on its profitable Truck Group, which includes Mercedes-Benz, Freightliner, Sterling Trucks, Mitsubishi-Fuso, Western Star, Thomas Built Buses, and Detroit Diesel, as well as its money-making luxury automotive Mercedes-Benz brand.

In 2006, DaimlerChrysler reported its Truck group logged a before-tax profit of 2.02 billion EUR, its Mercedes car group 2.42 billion EUR. The Chrysler group lost 1.12 billion EUR.

“We’re confident that we’ve found the solution that will create the greatest overall value, both for Daimler and Chrysler,” said Dieter Zetsche, DaimlerChrysler’s chairman. “With this transaction, we have created the right conditions for a new start for Chrysler and Daimler.”

The sale will create a new entity, Chrysler Holding LLC, which will produce and sell Chrysler, Dodge and Jeep vehicles, along with the future Chrysler Financial Services LLC, which provides financial services for these vehicles in the NAFTA region.

Cerberus last year bought a 51% controlling stake in GMAC, the financing arm of General Motors for $14 billion.

DaimlerChrysler said it is maintaining a 19.9% stake in Chrysler so it can maintain ongoing development projects, especially in alternative fuels, said Zetsche.

Daimler is also providing $1.6 billion in funding to the new Chrysler company, in part to maintain obligations for pensions and healthcare costs. This funding was a factor in gaining a key endorsement from United Autoworkers president Ron Gettelfinger of the sale.

“The transaction with Cerberus is in the best interests of our [UAW] membership, the Chrysler Group and Daimler,” Gettelfinger said. “We are satisfied now that this decision has been made so our membership can focus on designing, engineering and manufacturing the finest quality products for the future of the Chrysler group.”

Daimler bought Chrysler nine years ago for $38 billion in the hopes of creating a car-truck manufacturing colossus in the U.S. But years of consecutive losses at Chrysler– notably $4.7 billion in 2002– swayed the main architect of the merger, Daimler’s former chairman Jürgen Schrempp, to step down in December 2005.

FleetOwner executive editor David Cullen has commented on the deal in his Reading Between the Lines Blog.

To comment on this article, write to Sean Kilcarr at [email protected] or Terrence Nguyen at [email protected].

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