Chrysler-Cerberus: Winners and Losers
May 15, 2007

“Who are the winners and who are the losers with Cerberus buying Chrysler?” Business Editor Rod Meloni of Detroit’s NBC affiliate, WDIV-TV, asked me.

The biggest losers are Chrysler’s unions. The biggest winner is Daimler.

However, there are flip sides to both.

The unions -– the United Auto Workers union and the Canadian Auto Workers union. They now have a gun to their heads for concessions, especially health care benefits and possibly a new wage structure for new employees, when negotiations open in June. The national contracts for the unions for all Big Three expire in September.

On the flip side, the unions are keeping jobs that could have easily gone away if Chrysler had disappeared.

Daimler won because it achieved its goal of ditching Chrysler. DCX stock has risen dramatically since CEO Dieter Zetsche announced on February 14 that Chrysler was in play. Shareholders, especially the vocal German ones, expressed their glee in a higher stock price, which rose another $2 yesterday.

They are probably even happier today. DaimlerChrysler reported this morning -– a day after it announced the sale of Chrysler -– that its first-quarter net profit was $2.6 billion, up from $1 billion in the first quarter of 2006, on the strength of Mercedes-Benz car sales. Its financials included $1.2 billion in expenses related to Chrysler’s turnaround plan and another $160 million to help unnamed troubled suppliers. Revenues were $47.3 billion, down from $50.1 billion a year ago.

Many analysts are extremely optimistic about Daimler’s prospects without Chrysler because of Mercedes-Benz as well as Daimler's truck business.

Achieving Daimler’s goal came at an incredibly high price, however. The Daimler-Chrysler merger was valued at $36 billion nine years ago. Daimler claims Chrysler contributed $11 billion to its corporate coffers during those years, although that was offset by $12.6 billion lost in market value in the same period.

Now Daimler will fork over about $650 million in cash for Cerberus to take Chrysler off its hands, although it also sheds $18 billion worth of health care and pension liabilities in the handoff.

The situation is similar to BMW and Rover. BMW spent about $765 million in 2000 to dump Rover onto the Phoenix Consortium. Despite the high price, it was worth it as BMW is healthier today without Rover.

Details of the Deal
80.1% -- Cerberus stake in New Chrysler
19.9% -- Daimler stake in New Chrysler
$7.4 billion --  Value of deal
$5 billion -- Cerberus invests in New Chrysler's auto business
$1.05 billion -- Cerberus invests in Chrysler's finance business
$650 million -- Daimler pays Cerberus
$18 billion --  Pension and health care liabilities assumed by Cerberus
0 --  New Chrysler's debt

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