Cerberus lands $7.4bn Chrysler

Cerberus Capital Management has won a $7 billion three-way fight for US car manufacturer Chrysler. The US buyout firm received unexpected union support after agreeing to take on the company’s $10 billion healthcare and pensions liabilities.

US buyout firm Cerberus Capital Management has agreed to buy Chrysler, the ailing US arm of German car-maker DaimlerChrysler, for $7.4 billion (€5.5 billion).

Cerberus will take an 80.1 percent stake in Chrysler Holding, while DaimlerChrysler will retain a minority investment of 19.9 percent. The transaction is expected to complete at the end of the third quarter.

DaimlerChrysler shares rocketed by over 5 percent on the strength of the deal, partly because Chrysler’s pensions and healthcare obligations will be retained by the division under the management of Cerberus. The size of the healthcare liabilities, which are valued at more than $10 billion, had been a major stumbling block for any bid.

In a surprise endorsement of the deal, United Auto Workers president Ron Gettelfinger said in a statement that the sale to Cerberus was: “in the best interest of our membership, the Chrysler Group and Daimler.”

Cerberus spokesman Peter Duda said further details of Cerberus’ intentions for the healthcare and pension liabilities would be revealed at a press conference later today.

Chrysler spokesman Mike Aberlich said the automobile company was pleased that Daimler had remained on board, as the company had several joint projects – including the development of fuel efficiency technology – which would now be able to continue.

Cerberus managed to see off Canadian auto-parts supplier Magna International, plus a consortium of US buyout firms Blackstone Group and Centerbridge Capital Partners, in order to land Chrysler.

There has been significant speculation around the automotive sector in recent months, as some of the biggest companies have come under the radar of large buyout firms for the first time. This has sparked a round of mergers and acquisitions activity; recently Porsche had a bid rejected for Volkswagen, the German car-maker in which it holds a 31 percent stake, although it is expected to return to the fray. Ford also sold off its luxury marque Aston Martin to an investment consortium led by Prodrive founder Dave Richards.

At 12.15 BST, DaimlerChrysler shares were up 5.29 percent at €63.75.