- Cerberus Capital Management Chairman John Snow: "Cerberus believes in the inherent strength of U.S. manufacturing and of the U.S. auto industry. Most importantly, we believe in Chrysler."
Details will be explained at a press conference in Stuttgart today at 2 p.m. CET/8 a.m. EDT.
Structure of the transaction -- An affiliate of private equity firm Cerberus Capital Management, L.P., New York, will make a capital contribution of $7.4 billion in return for an 80.1% equity interest in the future new company, Chrysler Holding LLC. DaimlerChrysler will hold a 19.9% equity interest in the new company. Chrysler Holding LLC will hold 100% each of the future Chrysler Corporation LLC, which produces and sells Chrysler, Dodge and Jeep(R) vehicles, and the future Chrysler Financial Services LLC, which provides financial services for these vehicles in the NAFTA region. -- Of the total capital contribution of $7.4 billion, $5.0 billion will flow into the industrial business (Chrysler Corporation LLC) and $1.05 billion will flow into the financial services business in order to strengthen the equity base of both businesses. DaimlerChrysler will receive the balance of $ 1.35 billion. In addition, DaimlerChrysler will grant a loan of $0.4 billion to Chrysler Corporation LLC. -- According to the agreement, upon the closing of the transaction, DaimlerChrysler will transfer the industrial business of the Chrysler Group completely free of debt. Due to the Chrysler Group's anticipated negative cash flow until closing in connection with its restructuring plan, the transaction will give rise to a cash outflow of $1.6 billion for DaimlerChrysler. The overall net cash outflow resulting from the transaction will therefore be $0.65 billion. In addition, DaimlerChrysler will have to discharge long-term liabilities of the Chrysler Group in connection with the transaction. This will result in prepayment compensation of approximately $878 million, to be borne by DaimlerChrysler. The usual transaction costs will also be incurred. -- The Chrysler Group's financial obligations for pension and healthcare benefits towards its employees and the employees of the financial services business related to the Chrysler Group will be retained by the Chrysler companies. The pension plans are significantly over-funded at present. Effects on key figures The transaction will have the following effects on DaimlerChrysler AG: -- In total, current estimates indicate that net profit according to IFRS in 2007 will be reduced by $4.1-5.4 billion. -- Due to the deconsolidation of the Chrysler companies and the resulting reduction in the balance-sheet total, the equity ratio of DaimlerChrysler's industrial business is expected to increase to more than 40% by the beginning of 2008. -- There will be no changes relating to the bonds issued and guaranteed by DaimlerChrysler AG. In the financial services business for the Chrysler, Jeep (R) and Dodge brands, Cerberus will take over the financing previously provided by DaimlerChrysler AG. -- The 19.9% equity interest held by DaimlerChrysler AG in the new company Chrysler Holding LLC will be included after closing at equity in the Van, Bus, Others segment. -- The closing of the transaction is expected to take place in the third quarter of 2007.
Dr. Dieter Zetsche, Chairman of the Board of Management of DaimlerChrysler AG and Head of the Mercedes Car Group: "We're confident that we've found the solution that will create the greatest overall value - both for Daimler and Chrysler. With this transaction, we have created the right conditions for a new start for Chrysler and Daimler."
Ron Gettelfinger, President of the United Autoworkers (UAW): "The transaction with Cerberus is in the best interests of our UAW members, the Chrysler Group and Daimler. We are pleased that this decision has been made, because our members and the management can now focus entirely on the development and manufacture of quality products for the future of the Chrysler Group."
John W. Snow, Chairman of Cerberus Capital Management, L.P.: "We welcome Chrysler into the Cerberus family of companies and believe Cerberus will be a good home for Chrysler. Cerberus believes in the inherent strength of U.S. manufacturing and of the U.S. auto industry. Most importantly, we believe in Chrysler."
Snow continued: "We would like to thank DaimlerChrysler for their good stewardship of this American icon over the last decade. We are aware that Chrysler faces significant challenges, but we are confident that they can and will be overcome. A private investment firm like Cerberus will provide management with the opportunity to focus on their long-term plans rather than the pressures of short-term earnings expectations."
In nearly ten years as DaimlerChrysler, a lot has been done to move the businesses forward. The synergies possible between Mercedes-Benz and Chrysler have been fully utilized. Additional potential for collaboration is limited between two businesses operating in such different market segments. The strong volatility and pressure on margins in the Chrysler Group's North American core market have an increasingly negative impact on DaimlerChrysler's overall profitability and share-price development.
The Chrysler Group has made substantial progress in recent years. For example, production hours per vehicle have fallen from 48 hours in 2001 to just over 30 at present. Quality has improved by more than 40% over the past six years. Since 2002, more than $10 billion has been invested in new production facilities and technologies. And with 34 new models since 2001, Chrysler has one of the youngest product lines in the industry.
Zetsche: "As a result, Chrysler today is structurally more sound than its North American based competitors. And with Cerberus as a partner, Chrysler will have the best chances of utilizing its full potential."
Existing projects with the Mercedes Car Group will be continued, for example in the development of conventional and alternative drive systems, purchasing, and sales and financial services outside the NAFTA region. Furthermore, a Joint Automotive Council will be established in which representatives of both sides will assess and decide on the potential of new and current projects. The Council will be led by board-level members from each company.
Zetsche: "We very much look forward to our continued cooperation as business partners, as we want to continue to reap the mutual benefits of working together. That's one of the reasons why we're retaining a 19.9% equity position in Chrysler."
New Daimler AG
Due to the new corporate structure, the name of DaimlerChrysler AG is to be changed to Daimler AG. A decision on this is to be taken by the shareholders at an Extraordinary Shareholders' Meeting probably in fall 2007.