DaimlerChrysler AG said yesterday it would sell more than 80 percent of its money-losing Chrysler Group to private equity firm Cerberus Capital Management LP for US$7.4 billion, unwinding its nearly decade-old deal to merge the US brand with Mercedes-Benz.
The German-American automaker said in a statement that an affiliate of Cerberus will acquire 80.1 percent in the new Chrysler Holding LLC, while DaimlerChrysler will keep a 19.9 percent stake.
It said that obligations for pensions and healthcare costs would be retained by the Chrysler companies.
Shareholders will decide on changing the company's name to Daimler AG.
DaimlerChrysler said the deal is likely to be complete by the third quarter and that it would reduce its overall profit by some 3 billion euros (US$4.05 billion) to 4 billion euros this year.
"We're confident that we've found the solution that will create the greatest overall value -- both for Daimler and Chrysler," said DaimlerChrysler chairman and chief executive Dieter Zetsche.
"With this transaction, we have created the right conditions for a new start for Chrysler and Daimler," he said.
He added that the two companies would continue to work together in the coming months and years.
The decision has worried unions in the US, but United Autoworkers (UAW) president Ron Gettelfinger called it the best choice.
"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," he said.
John Snow, chairman of Cerberus, said the deal was a sign of faith in Chrysler, an iconic US brand and the third-largest carmaker behind General Motors Co and Ford Motor Co.
"We welcome Chrysler into the Cerberus family of companies and believe Cerberus will be a good home for Chrysler," he said in a statement. "Most importantly, we believe in Chrysler."
Shareholders were excited about the news, bidding the company's stock up more than 6 percent in trading before it fell back to 62.82 euros, still up more than 3.6 percent.
The sale comes after nearly two months of study and negotiations by several companies interested in buying DaimlerChrysler's troubled US operations.
The deal is a stunning reversal of the 1998 US$36 billion merger of Chrysler by the then DaimlerBenz AG that tried to set the mold for global automotive manufacturers. Despite the pledges and promises of synergies and advancement, the two companies never truly melded into one.
The German-American company announced on Feb. 14 that all options are open for Chrysler, which lost US$1.5 billion last year and is undergoing a restructuring plan that will eventually shed 13,000 jobs.
Last year, General Motors Corp sold a majority stake in its General Motors Acceptance Corp (GMAC) financing arm to a consortium of investors led by Cerberus for about US$14 billion. Analysts have said buying a big stake in Chrysler could be attractive to Cerberus because it could combine GMAC operations with Chrysler Financial.
In December, Cerberus was part of a consortium of investors that said it would invest US$3.4 billion in the struggling auto parts giant Delphi Corp in exchange for new shares of Delphi stock as it emerged from Chapter 11 bankruptcy protection.
On its Web site, Cerberus said the companies in which it has a controlling or significant minority stakes generate more than US$60 billion in annual revenues.
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