GM bid sparked Chrysler auction
General Motors Corp. has a bid on the table for the Chrysler Group and
remains a long-shot candidate to acquire the struggling U.S. division of
DaimlerChrysler AG, The Detroit News has learned.
While GM's offer, made in late January, was initially rejected by
DaimlerChrysler, the bid is still active as other potential buyers gear up
to make their own proposals this week.
GM's bid has three components but does not include any cash payment for
Chrysler, according to people familiar with the situation.
To acquire Chrysler, GM offered to give DaimlerChrysler a minority stake in
GM stock of less than 10 percent.
In addition, the proposal called for DaimlerChrysler to pay GM more than $1
billion to defray Chrysler's health care costs, and then team up with GM to
seek financial concessions for Chrysler from the United Auto Workers.
The GM proposal was rejected as too low by DaimlerChrysler, according to
people close to the talks.
The rejection then prompted DaimlerChrysler CEO Dieter Zetsche to go public
on Feb. 14 that "all options" were being explored for Chrysler.
Zetsche's announcement triggered a rush of interest in Chrysler from
heavyweight Wall Street investors as well as the Canadian auto supplier
Magna International Inc.
Last week, Magna made a provisional offer to acquire Chrysler, according to
a source close to Magna's board of directors.
One auto analyst, Bret Hoselton of KeyBanc Capital Markets, said in a
research report Friday that Magna and an unnamed private equity partner had
offered to acquire Chrysler for $4.7 billion.
However, the source close to Magna said Sunday that the supplier is still
talking to several private-equity firms about potential partnerships.
The head of the Canadian Auto Workers said Sunday that Magna's bid for
Chrysler did not come as a surprise.
"I always thought they were serious," said CAW President Basil "Buzz"
Hargrove. "The question is what shape is it going to take, and will it be
successful. They are not going to be the only bidder."
People close to the sale process said two major private-equity contenders
are likely to weigh in with bids this week -- Cerberus Capital Management
and a joint effort by the Blackstone Group and Centerbridge Partners.
Cerberus and Blackstone are in the final stages of formulating their
proposals. Both groups have been aggressive investors in the automotive
sector and are said to be keenly interested in a Chrysler acquisition.
Cerberus has hired former Chrysler chief operating officer Wolfgang Bernhard
as an adviser, a move that could strengthen its position in the bidding
GM may still be contender
But even with Magna and private-equity players in the bidding, GM could
still prove a force to be reckoned with.
GM Chairman Rick Wagoner first discussed a Chrysler deal with Zetsche in
December, according to people familiar with the discussions.
GM, the No. 1 U.S. automaker, was seen by DaimlerChrysler as a natural buyer
The talks focused on how GM could absorb all of Chrysler's operations and
possibly use the deal to leverage historic cost-saving concessions from the
But GM was unwilling to pay any cash for Chrysler, and insisted that any
approach to the UAW be made together with DaimlerChrysler.
When the GM offer proved inadequate, DaimlerChrysler then moved to open up
the bidding process to other interested parties.
However, GM and DaimlerChrysler have continued to talk about a possible
Chrysler deal, according to people with knowledge of the talks.
Fritz Henderson, GM's chief financial officer, has met several times with
DaimlerChrysler CFO Bodo Uebber and chief strategist Ruediger Grube. Wagoner
and Zetsche have also met periodically.
One person close to the situation said GM is considered a "long shot" to
emerge as the winning bidder for Chrysler. Another person involved in the
process said GM appears to be "waiting in the wings" if a private-equity
deal does not materialize.
DaimlerChrysler declined to comment Sunday on the bidding process. A GM
spokesman declined to discuss whether the automaker has made an offer for
"We've said often in this process that we have conversations with other
automakers from time to time," said Tony Cervone of GM. "Often they don't
lead to anything.
People close to the sale process said the German automaker is anxious to
report progress soon on a potential Chrysler deal, although company
officials are trying to dampen speculation of an announcement at its annual
shareholders meeting on April 4 in Berlin.
Stocks soar on sale news
Chrysler's $1.5 billion loss last year was the final straw for
DaimlerChrysler shareholders who have been highly critical of the 1998
acquisition of the U.S. automaker by the former Daimler-Benz AG.
The potential sale of Chrysler has caused a near-euphoric reaction among
DaimlerChrysler shareholders. On Friday, the company's stock soared to
$82.36 -- its highest point in six years.
Estimates of Chrysler's value vary widely, but some analysts say its
unfunded health care liabilities may largely offset the value of the
industrial assets, excluding Chrysler's share of DaimlerChrysler's financial
services. Chrysler has $17 billion in health care liabilities, which could
be reduced if the automaker obtains health care concessions from the United
Auto Workers similar to those granted to GM and Ford Motor Co.
One analyst said potential bidders might ask DaimlerChrysler to contribute
more toward the liabilities as part of a deal, but "in our view, it's not
necessary for them to write a big check."
With more bids possibly coming in this week from Cerberus and Blackstone,
the stock could be poised for another wild ride.
"This is going to be an important week," said Hargrove, "and an interesting
"If they pull a knife, you pull a gun. If they put one of yours in the
hospital, you put one of theirs in the morgue."
Sean Connery, "The Untouchables"