Chrysler's buyer kicks tires

The Baltimore Sun

DETROIT -- The selling of Chrysler is not a done deal - yet.

Cerberus Capital Management will spend the next few weeks - if not months - finalizing the deal, conducting further double-checking and settling details before signing on the dotted line to acquire the Chrysler Group from DaimlerChrysler AG.

Cerberus appears to be pushing hard for an early July closing date, a move that could remove a layer of complications from forthcoming labor negotiations with the United Auto Workers.

"You've got to check everything out. It's just like a home inspection," Chrysler spokesman Jason Vines said. "They looked at the basement, didn't see any leaks. Noticed the roof is pretty solid, but there are a few rooms they probably want to look at."

Dieter Zetsche, DaimlerChrysler AG's chief executive, has referred to Chrysler-Cerberus as a mature deal, indicating that it is far along in the process. Cerberus officials have occupied temporary space on the 15th floor of the Chrysler tower in Auburn Hills, Mich., meeting with executives and labor leaders in recent days.

No one is saying the Cerberus-Chrysler deal is likely to fail; rather they note that it is not final yet and that some deals do not get done. "Something extraordinarily unusual would have to happen to make this deal fall apart," said Joseph S. Phillippi, an industry analyst.

Last week, the DaimlerChrysler supervisory board agreed to the concept of the deal, which involves Cerberus spending $7.4 billion to acquire 80.1 percent of Chrysler.

The due diligence process typically involves looking "at every dimension of the business," said David E. Cole, chairman of the Center for Automotive Research.

"They have done a reasonable level of due diligence up to this point to put together their initial offer," Cole said. "Now they go in much more deeply and talk to people all throughout the company: They're into the technology, the labor agreement, the plants. ... They want to nail that down very, very tightly."

Usually Wall Street firms, such as Cerberus, insist on escape clauses in deals for such events as a sharp economic downturn, Phillippi said.

This could explain why DaimlerChrysler picked a buyer that could make a deal happen quickly.

Time also is ticking away before official talks begin in July between Detroit automakers and the UAW. The current contract ends in September.

The only official word from DaimlerChrysler about when the deal could be done is the third quarter. In an interview with a Detroit radio station last week, Chrysler CEO Thomas W. LaSorda seemed to indicate the parties are shooting for July.

A company insider indicated the company hopes for an early July closing, but Vines, the Chrysler spokesman, emphasized that no official date has been set.

"There is a lot of legal wrangling that has to happen," Vines said. "There is a push to get it done as fast as humanly possible."

Gerald C. Meyers, a University of Michigan business professor and former chief executive of American Motors, doubts the deal can be closed by July.

"This is a very complex deal," Meyers said, in large part because of labor issues.

"If they fail to get the concessions that make their numbers work, then there is going to be a great deal of unhappiness," Meyers said. "If that negotiation doesn't go well, that will put a cloud over the whole thing."

Zetsche has said the Cerberus-Chrysler deal is not contingent on a deal with the unions, but Cole said labor issues loom for Cerberus.

"When you get into due diligence and you get into the real facts of the situation, those issues are going to be there," Cole said.

"In business, lying is one of the things you do all of the time. There are things you can't talk about," he added. "There are things you just either from a legal standpoint or from a political standpoint, you can't talk about."

Longtime observers like to point out the proposed deal by Ford Motor Co. to acquire Daewoo Motor in 2000 after it beat out other automakers, including General Motors Corp., to snatch the South Korean carmaker out of bankruptcy.

After topping other competitors with a $6.9 billion offer in the summer of 2000, Ford pulled out a few months later. About a year later, GM bought a controlling interest in Daewoo for $400 million.

Mergers and acquisitions expert Brian D. Krasicky of O'Keefe & Associates said hurdles that arise at this point in a deal tend to be "things like unexpected and undisclosed liabilities."

But, he said, "I expect the deal to close regardless of the hurdles because Daimler appears to be a very motivated seller."

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