Three groups ready to vie for Chrysler

Three groups ready to vie for Chrysler
By Richard Milne in Frankfurt and John Reed in London
Copyright The Financial Times Limited 2007
Published: March 23 2007 22:01 | Last updated: March 23 2007 22:01



Indicative bids for Chrysler, the US carmaker put up for sale by DaimlerChrysler, are due next week from the three interested groups but any final deal is likely to take several months longer.

JPMorgan Chase, Daimler’s adviser, has asked for initial offers – to include a price and detailed business plan for Chrysler – before the end of March and at least three bids are expected, people close to the negotiations said.

Cerberus, which is advised by former Chrysler executive Wolfgang Bernhard, a consortium of Blackstone and Centerbridge, the private equity groups, and Magna International, the car part supplier, are likely to express interest.

One person close to the bidding said that Magna had teamed up with buy-out group Ripplewood while General Motors was following the situation closely and could join one of the private equity bidders.

The pressure is mounting on Daimler to go ahead with a sale of the lossmaking US carmaker as rumours of a quick sale mount. One person close to the bidding adds that a second round could be concluded by the end of April to choose a preferred bidder. But people involved in the negotiations say any sale is unlikely to be completed before the summer, if not the autumn.

Contrary to some expectations, Daimler will not give an update on the situation at its annual meeting on April 4.

The main issue for any of the bidders is to decide how viable Chrysler’s business is at all. Because of the long product cycles in the automotive industry, any buyer would be largely tied down for the first three or four years – an unusual and uncomfortable position for private equity bidders, particularly taking over a struggling and lossmaking asset. “This is about looking at the prospects for the business in 2012, 2013, 2014,” said one person close to the negotiations.

Reputational risk is another big worry, these people say, as a buyer could not afford to let Chrysler go bankrupt for political reasons – something very important with private equity in the spotlight and Blackstone preparing to list on the stock market.

Healthcare is also likely to play a big role in the negotiations with some of the bidders hoping for concessions from the UAW, the main US union, but if that fails they would want to be compensated by Daimler.

Any indicative bids are likely to be hedged with a large amount of caveats but one person close to the bidding said offers should come in at $4bn-$5bn, with up to $6bn possible.

KeyBanc Capital Markets analysts wrote on Friday that Magna and a private equity partner offered $4.6bn-$4.7bn with the supplier hoping for a 20-25 per cent stake.