Another suitor for Chrysler?

Canadian auto supplier Magna moves toward making bid, KeyBanc analyst reports

February 27, 2007|By Detroit Free Press

DETROIT -- Magna International Inc., a Canadian auto supplier, is likely to make a bid for the Chrysler Group, adding another potential suitor for the Auburn Hills, Mich.-based unit of DaimlerChrysler AG, according to a research report issued yesterday.

The Chrysler Group has been the subject of intense speculation since DaimlerChrysler said two weeks ago that all options are on the table.

Magna, which assembles vehicles for Chrysler at an Austrian factory, would like to expand its role beyond that of a supplier and niche contract assembler, a report by KeyBanc Capital Markets says.

"According to our sources, [Magna] is currently doing substantial due diligence work on Chrysler and is seriously considering the potential purchase of the company," analyst Brett Hoselton wrote. "Although MGA's extensive due diligence makes an offer for Chrysler possible, we believe that the ultimate combination of the two companies is a low-probability outcome."

The reports are speculative, and as a matter of policy Magna does not comment on speculation, spokeswoman Tracy Fuerst said. The company does not have a long-term strategy to become a full-fledged automaker, she said.

DaimlerChrysler declined to comment yesterday about any possible deal. The automaker hopes to meet with potential bidders for the Chrysler Group in the next few weeks and have developments to report by the April 4 annual shareholders meeting in Berlin, a company source said.

New scenarios for selling Chrysler emerge each day. The Financial Times reported yesterday that DaimlerChrysler is considering selling the Chrysler Group for a stake in General Motors Corp. Two of DaimlerChrysler's institutional shareholders have said they like the idea of swapping Chrysler for shares of GM stock, the London newspaper reported.

DaimlerChrysler seems intent on selling Chrysler, said Gerald Meyers, a University of Michigan business professor and former chairman of American Motors Corp., but taking GM stock for the Chrysler Group is "far-fetched."

DaimlerChrysler executives are looking for ways to cut ties to U.S. automakers, not continue them, he said. "This move would ally them with the successor owner of Chrysler," Meyers said. "I don't think they would want any part of it."

A GM-Chrysler deal would be complicated, analysts say. Both automakers are dealing with overcapacity and legacy costs for retiree health care and pensions. Both were hurt by a heavy reliance on trucks and SUVs.

"Unfavorable truck mix [Chrysler 77 percent versus GM 61 percent] stands out as an obvious obstacle, but we think the potential to use the deal to negotiate concessions with the UAW could appeal to GM," J.P. Morgan analyst Himanshu Patel said in an investors' note yesterday.

Magna, though, would have different motives. A Chrysler acquisition would allow Magna to move upstream and become a full-fledged automaker.

KeyBanc said its sources indicated that Magna took several key steps toward making a bid for Chrysler. Magna executives met with the UAW, toured Chrysler facilities, got access to Chrysler financial data and studied Chrysler's dealer network, KeyBanc said in its report.

"Our sources said they would be surprised if MGA did not make an offer for Chrysler given its extensive and ongoing due diligence work," the KeyBanc report said.

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