Earlier, I wrote about GM being a possible suitor for Chrysler. As it turns out, GM is probably not the only manufacturer that could exercise its influence to nab Chrysler from DaimlerChrysler AG. DaimlerChrysler is looking for the quickest way to off-load the struggling division and gain some much needed cash. Although the company appears to be united in selling Chrysler, it is split on how to go about it. Some members in the board of DaimlerChrysler want to rid themselves of the division as soon as possible. Others, on the other hand, want to invest some more money and sweeten the deal for potential suitors.
At DaimlerChrysler’s sprawling Stuttgart headquarters, the decision over how to proceed has split top management and board members into opposing camps: One backs a rapid sell-off of Chrysler Group, while the other favors first completing a restructuring effort into next year to bolster the selling price. A delay might reduce the final cost to Daimler of unloading Chrysler after subtracting its $22 billion in health-care liabilities. But the sell-it-now crowd appears to have the upper hand. “The chance that Daimler will sell Chrysler by fall of this year, before a new contract has to be negotiated with the unions, is probably 100%,” says one senior DaimlerChrysler official who asked not to be named.
Three main suitors are at the steps of DaimlerChrysler, however, all three are shy to admit any potential dealings. The fore-runner is GM, followed by a private equity group, and then possible European or Asian manufacturers. GM has hinted that if it were to pursue the company, it would do so only if it could acquire the division for almost no money. This is probably the biggest thorn since it is unlikely DaimlerChrysler will agree to such terms. In addition, GM will have to handle 11 different brands in a market that is already cut-throat and one in which GM is still trying to make a profit.
Private equity firms are of particular interest since they are bent on breaking up Chrysler and maximizing revenue. They can literally enjoy increased cash revenue and possibly even go for the bigger fish by acquiring DaimlerChrysler. In addition, these firms can then sell Chrysler assets to Renault-Nissan, Tata Motors, or even Hyundai, another prospective suitor.
Private equity firms see substantial breakup value in Chrysler alone. The Jeep brand plus its factories could bring $5 billion to $7 billion. At least a few of Chrysler’s plants would be of interest to Hyundai Motor, Chinese automakers, Renault-Nissan, India’s Tata Motors, and possibly Volkswagen (VLKAY). DaimlerChrysler Financial Services, almost a forgotten asset, earned about $2 billion last year. The wild card? A private buyer would have to negotiate UAW worker buyouts and figure out who pays for it.
Although Renault-Nissan has denied interest in Chrysler, it is possible they may be interested in a part of the company. Chinese auto manufacturers could benefit greatly by pursuing Chrysler as they can expect to launch their own Chinese made vehicles in a relatively short amount of time. This is one of those deals that can greatly benefit Hyundai, which has undergone a major transformation in the past decade and has proven itself as worthy adversary to Toyota. In addition, with Chrysler on board, Hyundai will be able to cross the million mark and enjoy a stronger and more influential presence in the lucrative North American auto market. It appears that a front runner will be more clearly visible towards the latter part of 2007, before contract renewals are made by Chrysler. The only common factor amongst all three suitors is the need to satisfy those power-hungry union workers. They are definitely going to have to trim their own demands before any sale can be fabricated.
Source: BusinessWeek
