What’s Up with Cerberus?
April 23, 2007

Cerberus Capital Management, a private equity firm bidding for Chrysler, likely will withdraw its bid for bankrupt Delphi Corp. and dropped plans to buy pieces of auto supplier Collins & Aikman leading auto observers to wonder what’s up with Cerberus.

Plans of closed-mouth Cerberus have been intriguing, as it has added to its automotive portfolio and stable of high-horsepower talent. Cerberus bought a chunk of General Motors Acceptance Corp. and agreed to buy bankrupt supplier Tower Automotive for $1 billion. As it contemplated its bid for Chrysler, it added Chrysler/Volkswagen exec Wolfgang Bernhard as an advisor; its automotive unit is run by ex-Ford exec David Thursfield.

However, last Friday, Cerberus appeared to be reversing its course. Delphi said Cerberus likely would withdraw from a group of investors who had bid $3.4 billion for auto supplier because the UAW refused more concessions. Also on Friday, Cerberus canceled its tentative agreement to buy the carpeting and acoustic materials businesses of bankrupt Collins & Aikman.

The latest moves of retreating are as curious as Cerberus massive efforts to enter the auto business. Is Cerberus getting cold feet about the automotive industry? Does it think it is over-exposed in the auto segment? Did Cerberus underestimate the power and resolve (or stubbornness) of the unions? What do these latest moves mean for its Chrysler bid?

Indeed, Cerberus’ inability to make a deal with the union puts into doubt whether it or any other private equity firm, for that matter, can be successful in buying Chrysler. Cerberus is believed to be among the top three contenders for Chrysler Group. At Delphi, it had wanted lower wages for new hires as well as deeper pay and benefits cuts from the union.

As for Delphi, another private equity firm, Appaloosa Management, which had been part of the package involving Cerberus and already owns 9.3% of Delphi, confirmed it intends to move forward with a deal to acquire part of Delphi even if Cerberus drops out.

In addition, Highland Capital Management, a Dallas-based hedge fund, reiterated its interest in making another unsolicited offer for the auto supplier, the Wall Street Journal reported. The fund told Delphi's board it would include other large Delphi equity holders in the offer. Delphi had rejected an earlier offer by Highland valued at $4.7 billion.

General Motors CEO Rick Wagoner said the potential withdrawal of Cerberus would not be a problem for GM, which created Delphi from spinning off its parts-making operations. GM has set aside about $6.5 billion to finance the restructuring of Delphi and subsidize UAW benefits. Still, GM is lining up alternative suppliers for many of its Delphi parts in case the union strikes. Delphi is GM’s largest supplier, purchasing $15 billion worth of goods from Delphi annually.

As Cerberus’ withdrawal from buying the Collins & Aikman’s business, New York billionaire Wilbur Ross, quickly snatched it up for $134 million in cash plus other compensation. The deal, involving 16 plants, 4,300 employees and $ has to be approved by the bankruptcy court and another bidder could put in an offer.

Just as intriguing as Cerberus is Ross’ International Automotive Components Group, which has been aggressively buying up bankrupt and ailing auto-parts businesses. If the deal is approved, Ross’ interests in 18 months will have accumulated automotive-related businesses with about $5 billion in annual revenue, the Wall Street Journal estimated.

Posted by Michelle Krebs at 1:50 PM under Chrysler , Commentary , News | Comments (0) | digg this | Seed Newsvine