Chrysler Acquisition Marks Cerberus Expansion

By: Anthony Fontanelle

After a head-to-head bidding with the renowned names in the corporate realm, the Cerberus Capital Management LP, the New York-based private equity firm, emerged as the mighty suitor. The DaimlerChrysler AG earlier announced that the private equity firm, managed by financier Stephen Feinberg, secured a $7.4 billion deal to purchase a controlling stake in Chrysler Group to create a more powerful expansion.

On Monday, Cerberus, named after the three-headed hound that guarded the gates of hell in Greek mythology, became part of U.S. corporate lore. The deal unwinds the controversial 1998 takeover of the American automaker by Daimler-Benz AG a deal that set the mark for massive cross-border acquisitions.

According to people familiar with the firm, Feinberg, armed with about $16 billion of capital, is taking a huge gamble. The deal could turn Cerberus into a major force in the automotive industry, especially considering that the company owns 51 percent stake in GMAC Financial Services and is in the middle of a $1 billion takeover of Tower Automotive Inc.

Some analysts believe Feinberg is facing a serious challenge given the sales decline in the U.S. auto industry. "Chrysler now has a one-in-five chance of being around ten years from now, which is still a lot better chance than it had yesterday," said Peter Morici, a professor at the University of Maryland's Robert H. Smith School of Business. "Cerberus might be the only one out there that can do it. They have the management experience, a record of successfully cutting costs, and is willing to bet real money you can make cars in North America successfully."

Morici, and others tracking the deal, point to a "dream team" of sorts that will help improve the chances that Feinberg will turn Chrysler around. Leading the list is John Snow, the former Treasury secretary which is the appointed chairman of Cerberus in October. The list also includes former Chrysler chief operating officer Wolfgang Bernhard, who earlier joined Cerberus as a senior executive. Bernhard is joined by David Thursfield, who managed the Ford Motor Co.'s operations outside of North and South America and who entered Cerberus in April 2004 as a senior member of its automotive team.

Cerberus, founded in 1992, has specialized in acquiring troubled companies and transforming them around through heavy cost-cutting. Its web site said that the firm owns about 50 companies with combined revenue of more than $60 billion and with some $25 billion of assets under management.

Those companies include a broad swath of industries, including everything from Formica Corp. to Air Canada. In the auto industry, Cerberus owns Guilford Mills, the largest automotive seating supplier in the U.S., and Peguform Group, a German-based manufacturer of interior and exterior plastic parts used in automobiles.

In connection with the Chrysler deal, CAW President Buzz Hargrove demands a written guarantee that Chrysler's Canadian union workers would not face further layoffs. The head of the Canadian Auto Workers met Tuesday with Chrysler CEO Tom LaSorda and senior Cerberus officials at DaimlerChrysler AG's headquarters in Auburn Hills. Hargrove said in a Toronto press conference this afternoon that Tuesday will mark his first meeting with Cerberus officials. "It's (angered me) greatly that there has been absolutely no dialogue with our union here," he said.

Hargrove said that he will give Cerberus a chance. "If they can satisfy our concerns there, they will not have a problem with our union. If they can't, they will have a problem with our union," he said. He did not go into details and made an abrupt stop likened to efficiently-powered halt. "My trip to Detroit tomorrow will be to guarantee they not cut anything," before the CAW's labor contract with Chrysler ends in September 2008, Hargrove said.

Chrysler is in the midst of enforcing its turnaround plan that required the slashing of 2,000 jobs in Canada. Of that, 1,300 are in Windsor, home to 5,500 Chrysler employees who assembles sport utility vehicles and minivans. Its Brampton, Ontario, plant also will lose 345 jobs.

Hargrove said that he talked with Chrysler CEO LaSorda this morning and Lasorda told him that Cerberus was committed to honoring current buyout and competitive operating agreements already in place. Hargrove was not happy that CAW wasn't involved in previous discussions with Cerberus. He said he was skeptical that a private-equity firm would take a long-term view of running the auto maker.

"I think (Chrysler has) been pressured with short-term vision," Hargrove said. "But how do they make a lot of money without more cuts?" Hargrove added United Auto Workers President Ron Gettelfinger's endorsement of the deal likely stems from his role as a member of the DaimlerChrysler supervisory board. "I respect that. But that doesn't mean doesn't necessarily mean we all come to that conclusion," Hargrove said.

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