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— Private Equity —
 After being unable to work out a restructuring plan acceptable to the hedge funds that control its secured debt, Chrysler LLC filed for Chapter 11 bankruptcy (see petition documents here), making it the first major U.S. automaker to do so. The latest: June 10: After the Supreme Court clears the way, Chrysler LLC-Fiat SpA closes. Deal contributor Eric B. Fisher examines lessons learned from Chrysler in: When hedge funds go to bankruptcy court. Meanwhile, June 9: Ginsburg continues halt on Chrysler sale to Fiat; Fiat would have been foolish to fuss; and Chrysler dealerships close up shop: The Detroit automaker ends franchise agreements with 789 dealers. - Maria Woehr
June 5: Poll: Chrysler conspiracy theories; June 3: 2nd Circuit to hear Chrysler sale appeal; June 1: GM's Ch. 11: Gordian's Kaufman on the road ahead; and Auto bankruptcies, politics and dealer closings. May 6: Chrysler's holdout hedge funds outed: The bankruptcy judge publicly releases the names of the holdout hedge funds despite their request for anonymity.
- George White Also, Chrysler HQ to become a mall? ; Taxpayers shell out $300K per Chrysler job; and Chrysler sale motion to Fiat on tap. May 1: The Chrysler bankruptcy kicks off speculation about the implications for future access to credit by large industrial companies, especially big, troubled, unionized ones. With the finger being pointed at hedge funds that refused to write off billions in secured Chrysler debt, will lenders think twice about getting involved in such situations? - George White and Kenneth Klee April 30: While President Obama said the process of moving the
carmaker through the bankruptcy courts will happen quickly,
restructuring pros remain divided about how quickly it will happen and
on whether the filing was what was best for the industry. Proskauer
Rose LLP's Jeff Marwil told The Deal that bankruptcy won't be
a joyride
for Chrysler and its filing will echo throughout the
industry, even if the process takes the two months Obama plans. Sandra
Mayerson of Squires, Sanders & Dempsey LLC told The Deal that
bankruptcy was Chrysler's best bet for restructuring itself into a compeitive enterprise. April 28: With a Chapter 11 appearing more and more inevitable, Chrysler LLC as well as General Motors Corp. are hunting around for friendly venues to file at away from the automakers' home court of Detroit or the two leading out-of-state venues for large cases, Wilmington, Del., and New York City. The Michigan courts were trying to compel the troubled automakers to file Chapter 11 in Detroit, if they needed to take such action. Chrysler would eventually choose New York state on April 30. - David Elman and Tom Groppe April 27: Chrysler and the United Auto Workers union reach a tentative agreement on contributions to a retiree healthcare trust and labor costs, leaving hedge funds that own $6.8 billion in the company's secured debt as the final piece of the puzzle for restructuring outside of bankruptcy. The two sides remained far apart as the lenders offered to write off more than $3 billion in debt in return for a 40% stake in Chrysler, and the company countered with 5% of the its equity in return for canceling nearly 80% of the debt. - Kenneth Klee and Lou Whiteman April 23: The Canadian Auto Workers and Chrysler inch closer to a deal on concessions that would help avoid bankrutcy and facilitate a partnership with Fiat SpA. Only a month before, the two sides had said they were "far apart" on a deal after they began concession negoitations on March 23. - Lou Whiteman April 21: Chrysler Financial takes a pass on TARP money, although Chrysler CEO Bob Nardelli had said the automaker's finance arm would request an undisclosed amount of assistance from the U.S. Treasury to help stimulate auto lending on March 18. - Kenneth Klee March 20: Steven Rattner, leader of President Obama's auto industry task force, says that bankruptcy is not a "desirable outcome" for the automakers. - Kenneth Klee March 19: The U.S. Treasury launches a $5 billion plan for the auto parts industry that will guarantee payment for the parts they ship to participating automakers. - Kenneth Klee March 16: Chrysler executives tell employees a deal with Fiat could be worth more than $9 billion. - Lou Whiteman March 13: Fiat considers a joint venture with France's PSA Peugeot Citroen SA or Chrysler or both. - Kenneth Klee Feb. 25: Chrysler execs meet with President Obama's auto industry task force to present their case for $5 billion in new government loans. - Lou Whiteman Feb. 18: Chrysler gives Treasury a bailout checklist that includes a request for $5 billion more in funding. - Baz Hiralal Chrysler pleads with dealers to stock their lots with more vehicles, as it scrambles to get its house in order ahead of the deadline for a viability plan. - Lou Whiteman Feb. 4: Bidders step up to buy the Viper sportscar brand from Chrysler. - Lou Whiteman Feb. 3: Auto sales fall below already morbid expectations. - Lou Whiteman Feb. 3: Fiat conducts very public due diligence on Chrysler. - Lou Whiteman Jan. 21: Chrysler signs on as a sponsor and underwriter for the upcoming "Terminator" movie. - Lou Whiteman Jan. 16: Chrysler Financial lands $1.5 billion in new TARP funds. - Bill McConnell Dec. 19: Chrysler and General Motors get $17.4 billion in TARP money. The terms call for the Treasury to extend $13.4 billion in loans to GM and Chrysler in December and January, with another $4 billion to be available if needed in February. At the same time, some wonder whether or not a temporary bailout is a waste. - Baz Hiralal and Maria Woehr Dec. 17: Chrysler decides to idle its plants for a month. - Lou Whiteman Dec. 12: The initial auto sector bailout fails in Congress, and credit markets shrug. - George White Dec. 12: President Bush may step in after the automaker bailout runs out of gas in Congress after being blocked by Republicans. - Baz Hiralal Dec. 9: Former Chrysler chairman and CEO Lee Iacocca expresses faith in the current lot of chief executives of the Big Three automakers. - Gerald Magpily Dec. 9: Chrysler and Chinese automaker Chery Automobile call off talks on a collaboration. - Baz Hiralal Dec: 8: President-elect Barack Obama says automakers made "repeated strategic mistakes" but can't be allowed to fail. - Gerald Magpily Dec. 5: Congress holds hearings on a bailout of the auto industry. - Lou Whiteman Dec. 3: Chrysler warns it is running low on cash, asks for $7 billion. - Lou Whiteman Nov. 7: Chrysler may be running out of cash even as it discusses a merger with GM. - George White Nov. 3: Auto sales slump in October 2008 as Cerberus Capital halts talks to sell a stake in Chrysler to Renault SA and Nissan Motor Co. Ltd. and focuses its full attention on a deal with GM. - Lou Whiteman Reports surfaced over the weekend of Oct. 11 Cerberus held talks -- though stalled by financial market turmoil and later revved up again -- with GM over Chrysler. Whiteman at the time called it a "head-scratcher," noting: "A deal between GM, which lost $15 billion in the second quarter, and Chrysler, which reportedly has lost at least $400 million so far in 2008, would seemingly do little to fix what ails the two automakers." From an antitrust perspective, they might be permitted to link up, The Deal's Cecile Kohrs Lindell noted Oct. 13. Only weeks prior, she wrote, two of the Big Three automakers consolidating would have drawn fire. But given the climate, it was a possibility "due to the sorry state of the U.S. industry and the current financial crisis, which has compounded -- perhaps fatally -- U.S. carmakers' problems." Meanwhile, Cerberus was also reportedly considering taking full control of GMAC LLC, the auto finance firm of which it owns 51% and of which GM is a minority owner. That could have factored into a Chrysler-GM deal, Whiteman noted.RUGGED TERRAIN Since Cerberus picked up Chrysler in 2007, it was a bumpy ride.
"The company failed to heal as quickly as Daimler and Cerberus had hoped, leading an executive to tell a Wall Street Journal reporter last year that the injection of cash was the only thing keeping it out of bankruptcy court. Because the deal was struck just as the global credit crunch began, Daimler eventually ponied up a $1.5 billion loan as part of the deal, which will remain unaffected by any sale, according to a story on Manager-magazin.de."
GOING GLOBAL Jerome York, the former Chrysler CEO and adviser to Kirk Kerkorian (the billionaire investor who made a run at Chrysler when it was on the block), on Feb. 8 said Chrysler wasn't viable as a standalone given its overreliance on the North American market, according to Reuters. Indeed, Chrysler sees international expansion as key to its turnaround and, like its fellow U.S. carmakers, a shift toward smaller more fuel-efficient cars, The Deal's David Carey noted, citing comments from vice chairman Jim Press. "We believe we can double our international sales over the next five years," Press said. "There may come a time when 50% of our sales are international." Press is the former president and COO of Toyota Motors Corp. in North American, brought over to Chrysler in September. UNLOADING JEEP? Divestitures would help on the cash-finding front, and the Economic Times in February said Mahindra & Mahinda Ltd. could buy Chrysler's Jeep division. Meanwhile, Whiteman noted, "Rumors have swirled for months that Chrysler is in talks with M&M about joint ventures to build cars in India that could go so far as Chrysler taking an equity stake in the automaker." Indian firms, Tata Motors Ltd. and Mahindra & Mahindra were in early June reported to be interested in GM's Hummer, according to the Times. GM unveiled a strategic review for the unit June 3. THE PLAN Chrysler, Whiteman explained in February, was tightening the belt with plans to eventually cut its number of models to half and reduce dealerships by one-third to align its Chrysler, Jeep and Dodge brands. Kicking off 2008, Chrysler made good on a promise of more job cuts. Chrysler boss Bob Nardelli said in December the company was facing a serious cash problem. And rumors long abounded about what Cerberus had in the works for Chrysler.
THE PRICE OF LABOR The November news came just days after Chrysler seemed to have finally nailed down a deal with its labor workers. The two reached a tentative agreement Oct. 10, but as the contract went to a vote, United Auto Workers came down on both sides, and it seemed unclear for several days whether enough votes would fall in favor of the agreement. Stalled negotiations led to a strike Oct. 9 across some plants that lasted six hours. The work stoppage mimicked a similar walk-out by autoworkers over labor negotiations with GM in September. But, as sources following the talks told Whiteman, Chrysler's new owner Cerberus was standing firm against adopting select provisions of the UAW-GM deal unless modified. THE AUCTION
DaimlerChrysler AG announced May 14 that New York's Cerberus would take an 80.1% stake in the Michigan automaker in a deal worth $7.4 billion. Only $1.3 billion of that price went to Daimler, the rest went toward Chrysler's turnaround. The buyout news came three months after DaimlerChrysler kicked off a strategic review as part of an aggressive turnaround plan aimed at returning the automaker to profitability by 2008. Later that same day, a Bloomberg report said Ford family members were considering a stake sale in ailing automaker Ford., citing unnamed sources. Chrysler, it seemed, could be on to something. The Chrysler auction drew several usual suspects. Chrysler confirmed April 4 it was in talks with interested parties, and according to multiple reports, alongside Cerberus, Blackstone Group LP was in the running, as well as Canadian auto parts maker Magna International Inc. A day later, published reports said billionaire investor Kirk Kerkorian's Tracinda Corp. was ready to offer $4.5 billion for the company he tried to acquire outright in the mid-'90s and years later brought suit against for its tie-up with then-Daimler-Benz. A KeyBank analyst research note first shed light on a Magna bid, saying the company had teamed with an unnamed buyout shop and made a $4.7 billion bid for Chrysler. Centerbridge Partners LP and Ripplewood Holdings are two other private equity firms rumored to have considered an offer. Meanwhile, the strategics withdrew. GM was pinpointed, though a deal between the Michigan neighbors would likely have presented antitrust issues. Days after the strategic review was unveiled, Chrysler was thought to have already lost prospective bidders -- France's Renault SA and Japan's Nissan Motor Co. Ltd., who were named by analysts as others possibly interested after the pair's own talks with GM fell apart the year before, said they were not interested. Another possibility bit the dust Feb. 23, 2007, when a Volkswagen AG spokeswoman confirmed it has no interest. DON'T LOOK BACK The U.S. division of Germany's DaimlerChrysler on Feb. 14 reported an operating loss of $1.47 billion in 2006, compared with an operating profit of $2 billion in 2005. Concurrently, management unveiled its turnaround plan. Chrysler had sustained inventory problems as gas-guzzling SUVs and trucks were falling out of fashion with consumers. As the manufacturer unveiled plans in February 2007 to cut 13,000 jobs, it also said it would shutter some facilities and invest $3 billion in powertrain technology to focus on fuel-efficient models. Despite Chrysler's financial drag on its Stuttgart-based then-parent, which counts Mercedes among its marquee brands, it managed to turn a $7.2 billion operating profit in 2006, which made the idea of divesting Chrysler all but a no-brainer. To weigh its options, DaimlerChrysler tapped J.P. Morgan. Nearly a decade earlier, Daimler-Benz AG then-chief executive Juergen Schrempp decided to take Chrysler Corp. for a $36 billion spin. Schrempp's thinking, as Bulkeley pointed out, was to cut costs by jointly purchasing auto parts and realizing other synergies, even trying to acquire Japan's Mitsubishi Motors Corp. and South Korea's Hyundai Motor Corp. But in the U.S., overcapacity sparked a price war. Chrysler grappled with quality issues, and it came to light that Mitsubishi executives had conspired to hide manufacturing faults that pushed the carmaker near bankruptcy. Schrempp was forced out in 2005, and the possibility of Daimler unloading the unit has long been one of speculation. WHO WANTS 'EM? Chrysler and Cerberus weren't without their challenges. The Deal's John Morris noted in March. "No one thought turning around Chrysler would be a piece of cake. So when Chrysler vice chairman Jim Press said Feb. 29 that despite a $2.8 billion loss over eight weeks from Aug. 4 to Sept. 30, Chrysler was performing up to the expectations of new owner Cerberus Capital Management LP, it was plausible. Cerberus began as a vulture investor and has an appetite for troubled companies." Visit the complete Dealwatch Archive |
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