Chrysler spinoff tempts suitors

Possible buyers include U.S., foreign car firms, private equity companies, investment banks

February 20, 2007|By New York Times News Service

FRANKFURT, Germany -- Not since Juergen E. Schrempp announced that he was stepping down 18 months ago has there been this much interest in the stock of DaimlerChrysler AG.

Whether there might be as much interest in a Chrysler spinoff remains to be seen.

U.S. and foreign auto companies, private equity groups and investment banks are eager to take a look at the struggling company's financial data.

Shares of DaimlerChrysler rose in European trading yesterday for a fifth straight session and have gained 5.5 percent since the company said Wednesday that it was keeping "all options open" in considering the future of Chrysler.

The last time DaimlerChrysler's stock received as big a lift was in July 2005, when the company announced that Schrempp, the architect of the 1998 merger of Daimler-Benz and the Chrysler Corp., would step down as chairman two years ahead of schedule. Dieter Zetsche succeeded him in 2006.

The prospect that DaimlerChrysler might now unwind Schrempp's landmark deal has particularly cheered German investors, who hold the bulk of DaimlerChrysler shares.

"The Germans are pushing it; there's no question about that," said David E. Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich. "They see this as an opportunity to cleanse the parent organization."

Thus far, attention in the market has focused on DaimlerChrysler's negotiations with the General Motors Corp., which is said to have opened talks two months ago on a possible deal for Chrysler.

Officials at GM and DaimlerChrysler declined to comment yesterday on a report in The Detroit News that said the chief executives and chief financial officers of the two companies have held several serious talks since December.

"We have discussions with other carmakers all the time about possible partnerships," said Tom Wilkinson, a spokesman for GM in Detroit. "A lot of time those discussions don't lead anywhere."

JPMorgan Chase & Co. is preparing an investment book to circulate to potential bidders, bankers with direct knowledge of its actions said yesterday. Other major banks are jostling to advise would-be suitors.

Analysts and investment bankers said several European carmakers, including Renault and PSA Peugeot-Citroen of France, might also be suitors for all or part of Chrysler. Each has been absent from the U.S. market for more than 15 years.

"The French are excluded from North America, which is a third of the world market," said Garel Rhys, director of the Center for Automotive Industry Research at Cardiff University in Wales. "Chrysler is not a top-end brand, but it would give them entree into the U.S."

Renault's chief executive, Carlos Ghosn, has yearned for a greater American presence and recently pursued fruitless talks to fold GM into his alliance of Renault and Nissan of Japan. Along with the French, analysts said Volkswagen of Germany and Chinese carmakers also might be interested.

So might private equity investors such as Cerberus, which bought half of GM's financing operations and has proposed investing in its bankrupt former parts unit, the Delphi Corp.

But another private equity investor, Wilbur L. Ross Jr., the venture capitalist who has snapped up a series of auto parts companies, said yesterday that he was not interested.

Some analysts and people with ties to DaimlerChrysler sounded a more cautious note. For one, they said, disposing of Chrysler in its current straits might end up being one of the greatest fire sales ever.

In a research report, Morgan Stanley estimated the division would fetch $6.5 billion, including its pension and health care liabilities, or only about a sixth of the $36 billion that Daimler-Benz paid for Chrysler.

That price would be barely 10 percent of Chrysler's annual sales, making it the "cheapest car company in the world," the Morgan Stanley report said. The figure also suggests DaimlerChrysler would have to take a whopping writedown on its investment.

Moreover, analysts noted, DaimlerChrysler has spent years squeezing synergies from the merger through joint auto-parts purchasing deals for Chrysler and Mercedes-Benz. Those advantages are considerable, analysts said.

And Daimler minus Chrysler would face the same long-term questions about its viability in the global auto industry as other medium-size, stand-alone competitors, such as its German luxury rival, BMW.

"As a carmaker, Daimler would become the smallest of the stand-alone operators in Germany, given that Porsche is likely to do something with Volkswagen," Rhys said. "BMW has survived, but because of the rip-roaring success of the Mini, which Daimler doesn't have."

In any case, Zetsche has not given up hope of fixing Chrysler, which he ran from 2000 to 2005, said a former senior DaimlerChrysler executive. "A dual-track approach would make the most sense: saying they are open to all options while trying to fix it," said the former executive, who spoke on condition of anonymity because the negotiations were private.

The disclosure of talks to sell Chrysler, analysts said, might also be aimed at the unions at both DaimlerChrysler and GM. The prospect of a sale to GM, or a partial acquisition that might necessitate sweeping layoffs, could provide leverage for the companies, they said.

Ross sees it otherwise. "Whoever buys Chrysler is going to have to make some kind of peace with the unions," he said.

In any event, taking on all or part of Chrysler would be a major risk for GM, which has made progress in its turnaround effort since losing $10.6 billion in 2005.

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