Magna keeps lead in Chrysler race

But UAW group hires investment bankers to prepare possible bid

May 11, 2007|By Jim Mateja and Rick Popely | Jim Mateja and Rick Popely,Chicago Tribune

Add union workers to the list of possible buyers for Chrysler Group, while Canadian-based supplier Magna International Inc. remains the odds-on favorite among analysts to acquire the U.S. unit of DaimlerChrysler AG .

Magna's shares rose nearly 7 percent in New York Stock Exchange trading yesterday on news that the company's first-quarter profit of $218 million exceeded analysts' expectations and that Magna agreed to a $1.54 billion investment by Russian billionaire Oleg Deripaska that would increase its business in Russia and give it more cash for its Chrysler bid.

The deal is subject to shareholder and regulatory approvals. Deripaska owns the second-largest Russian automaker, GAZ.

Magna's shares gained $5.38 yesterday, to $84.31, a 52-week high. DaimlerChrysler's U.S.-traded shares lost $1.17, to $79.02.

A group of United Auto Workers in Toledo, Ohio, where Chrysler produces Jeeps, has hired an investment banking firm to prepare a possible bid through an employee stock ownership plan that would give workers about a 70 percent stake.

The UAW group, organized as Employee Owned Co. LLC, is operating independently of the union's international headquarters in Detroit, which has not endorsed the idea or commented on the idea.

The employee group, which has met with DaimlerChrysler executives, has hired Morpheus Capital Advisors of New York as a consultant. The employee group could not be reached yesterday, and Morpheus would not comment.

Analysts described the union effort as a long shot compared with bids from Magna and private equity groups led by Cerberus Capital Management LLC and the Blackstone Group that were submitted weeks ago. DaimlerChrysler insiders say a winning bidder could be named in a few weeks.

"It stirs the pot a bit, but if the employees bought it, who would run it and who has the ability necessary to run it?" asked Erich Merkle, an analyst with forecaster IRN Inc. "Employees, like private equity groups, aren't equipped to run an automaker, which is why I like the option of selling it to Magna. Magna knows how to do it."

Burnham Securities analyst David Healy called employee ownership of Chrysler "a very bad idea," noting that United Airlines fell into bankruptcy while employee owned.

"Employees don't have the discipline to cut costs," Healy said, and union workers at Chrysler would face the prospect of thinning their own ranks.

Billionaire investor Kirk Kerkorian also has bid for Chrysler, though industry analysts believe his offer has received the cold shoulder because he made a hostile offer for the automaker in the 1990s. He subsequently sued, unsuccessfully, over the 1998 sale of Chrysler to Daimler-Benz.

Magna has emerged as the leading contender because it has close ties to DaimlerChrysler and industry experience. Magna President Mark T. Hogan, a former General Motors Corp. executive, is regarded as someone who could run Chrysler.

DaimlerChrysler is Magna's largest customer, accounting for about 25 percent of sales, and Magna builds cars and minivans for Chrysler in Austria. Magna has teamed with Onex Corp., a Canadian investment conglomerate, in a bid that KeyBanc Capital Markets analyst Brett Hoselton estimates at $5 billion.

Magna Chairman Frank Stronach said he has asked Daimler- Chrysler to retain a stake in the U.S. automaker but has not indicated whether Magna intends to seek a majority interest. Stronach told reporters in Toronto on Tuesday that Magna has $2 billion in cash and has lined up banks to back his bid.

"Financially we have a viable concept," Stronach said without giving details.

Jim Mateja and Rick Popely write for the Chicago Tribune.

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