INDUSTRY UPDATEDCX Realigns, Sells Off
Chrysler Business Units DETROIT (May14, 2007) - Three months after opening up all options to improve profitability at both Mercedes-Benz and Chrysler, DaimlerChysler (DCX) Board Chairman Dr. Dieter Zetsche announced the realignment of DCX. A new company, Chrysler Holding LLC, has been formed that will own the current Chrysler vehicle and related financial services business units. In addition, DaimlerChrysler will seek to rename itself Daimler AG. Zetsche also said an 80.1 percent stake in the new company has been sold to private equity firm Cerberus Capital Management LP. "We're confident that we've found the solution that will create the greatest overall value, both for Daimler and Chrysler," Zetsche said. "This solution is subject to approval by our Supervisory Board." He also outlined the pertinent details of the realignment:
* Chrysler Holding LLC will produce and sell Chrysler, Dodge and Jeep brand vehicles, as well as provide financial services for these vehicles in the NAFTA region.
* Cerberus Capital Management LP will receive an 80.1 percent equity interest in the new company, in return for a capital contribution of $7.4 billion. The renamed Daimler will retain a 19.9 percent equity interest.
* The two automakers will establish a joint automotive council to collaborate on programs. These include conventional and alternative powertrain development, procurement activities and regional cooperation, cooperation in sales and with financial services outside of North America, shared logistics systems and other new projects that arise.
* The inflow of new capital and the transfer of the business units debt-free will assure the new company of a sound financial basis and starting point.
* The financial liabilities for pensions and healthcare costs will be retained by Chrysler Holdings LLC. Zetsche said the pension plans are significantly over-funded at present. *
The deal has the full support of Ron Gettelfinger, president of the United Auto Workers. "With this transaction, we have created the right conditions for a new start for Chrysler and Daimler. Given our very intense, open and constructive discussions with Cerberus, we expect to formally close this deal in the third quarter," Zetsche added. Zetsche said that a number of factors contributed to the decision, including the marked shift away from light-trucks and sport utility vehicles as gas prices climbed, escalating raw material prices and rising healthcare costs in the United States. "Chrysler today is structurally more sound than its North American-based competitors," Zetsche said. "And now, with a strong partner in Cerberus, Chrysler will have the best opportunity to realize its full potential. While Chrysler will be more agile and flexible, it will have the resources and ability to sharply focus on the continued implementation of its Recovery and Transformation Plan." The "new Daimler" will stand on a very solid foundation, explained Zetsche. "We've grown steadily over recent years at a rate between 5 and 6 percent, and we're well-positioned for future profitable growth," he said. "We have above industry average financial power. We'll be less dependent on the volatility and margin pressure in the volume segments. We've created one common corporate structure, accelerated internal processes and achieved significant synergies that contribute to the success of all of our businesses. As a result of our strategic review, we have a well-defined roadmap to lead us into a good future." Moving forward, Zetsche said that the new Daimler would continue to grow its core business in its traditional market segments - which are both the most profitable and have the highest growth rates - as well as exploit new market opportunities on a regional basis, thereby expanding its customer base. The company will also further develop innovative, customer-oriented and tailor-made services and other activities, pursuing opportunities both up and down the value chain. Finally, Daimler will focus on strengthening its leadership in areas such as sustainable, environmentally friendly and related technologies, such as safety and diesel engine technologies.
(Source: DCX) 
