Magnas Deal With Russian Firm Wont Affect Chrysler Bid

By: Anthony Fontanelle

Magna Chairman Frank Stronach earlier announced a billion-dollar-plus partnership with a Russian auto magnate but said the deal would have no bearing on his bid for DaimlerChrysler AG's Chrysler Group.

Stronach said he expects Daimlerto choose a prospective buyer for Chrysler before the deal with Oleg Deripaska's firm Russian Machines is approved by Magna shareholders and finalized. "We hope one way or the other that the Chrysler issue will be solved by then," Stronach told reporters at a news briefing after Magna's annual meeting.

The Canadian parts supplier has partnered with Toronto equity firm Onex Corp. to bid for Chrysler, "and the indications are, Mercedes would like to stay with a small stake," Stronach said. He noted he is open to shaving other firms join the bid but declined to disclose further details about the status of the Chrysler negotiations.

"We can't say, 'This is what we'd be prepared to pay.' We can't talk about the process itself. J.P. Morgan is handling the process. We do hope that we'd be partners and that we could participate," Stronach stressed. "That's all we can say at this time."

The Toronto Star also reported that Stronach said job cuts at Chrysler would be unavoidable. The Star quoted Stronach as saying Wednesday: "Sometimes, when you're sick, you've got to take some drastic measures. And that's unfortunate." In reply, Stronach said unions had an important role, and he did not oppose them in principle, although his company's workers are not organized. But he said the North American auto industry needs to adapt to cope with tough competition from Asian automakers. "We in business have to change," he said. "Unions have to change. We all have to change."

Magna President Mark Hogan told reporters after the annual meeting that Chrysler's difficulties weren't insurmountable. "We know their problems and they are fixable," he said. Additionally, Magna's shareholders, eager to hear about the Chrysler bid, were surprised by the deal between Magna, the family-owned Stronach Trust which controls the supplier, and Russian Machines.

Under the terms, Russian Machines would invest $1.54 billion to acquire 20 million Class A Magna shares. Those shares, as well as the shares held by the Stronach Trust, would be put into a new entity called Newco which would have voting control of Magna. Magna finance officials said Stronach retains control of the supplier. The company reported a small increase in first-quarter income, to $218 million from $212 million a year earlier, on sales of $6.4 billion.

On the other side, the American arm of Daimler, trying to slash 9,000 U.S. hourly positions over three years as part of its plan to recover from the previous losses, has exceeded projections on number of workers interested in Chrysler's buyout. There's no EBC Active Brakes Direct to stop it from moving forward. In fact, it has exceeded its expectations. "Corporatewide, we have exceeded our original projections," said Chrysler spokeswoman Michele Tinson. But she decline to give further details on the matter.

In 2006, Chrysler has reported $680 million loss. As such, it offered U.S. blue-collar workers at certain plants a retirement package that includes a $70,000 lump sum plus health care and pension benefits. Workers with less seniority were also offered buyout packages worth $100,000 and six months of limited health benefits. Some 4,312 hourly employees represented by the United Auto Workers in the United States and in Canada submitted paperwork to accept the buyouts. Among them are 1,600 Michigan workers. Over 35,000 Ford hourly workers, or about half of the Dearborn automaker's hourly work force, signed up.

Both programs were made available in early March after Chrysler outlined its restructuring plan on Feb. 14. Union officials, who spoke on condition of anonymity, said there was a surge of interest in the buyout offers, particularly for the $100,000 packages.

"Our manufacturing facilities will determine when the accepted programs will be activated," said Tinson, based upon the manpower needs of each targeted factory. But the wait is dampening the mood at some plants.

"People aren't happy," said Ron Toerper, a worker at Chrysler's Warren Stamping plant, where 420 workers have applied for buyouts. He added, "They'd like to know their status. You want to plan your future. You like to know what your status is: 'Am I going to retire or am I not?'"

The Detroit automaker is not offering an update on the number of applications it has received to date. The automaker has said it intends to slash 5,875 factory jobs this year. Workers should communicate if they are willing to take a buyout by June 30.

Chrysler's offers are competitive with programs at General Motors Corp. and Ford Motor Co., some analysts have said. "I'm not surprised at the take rate at all," said Fred Hubacker, executive director at Conway MacKenzie & Dunleavy, a turnaround firm in Birmingham. "It looks like what happened at competitors across town and at Delphi."

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