US Auto & Truck

Cerberus and Daimler Squabble Over Remaining Chrysler Shares

Two international companies are currently squabbling over their respective shares in Chrysler, LLC the third largest and least healthy of America's big automakers. Cerberus Capital Management, LP ' a private equity company ' and Daimler AG ' the German automaker who produces Mercedes-Benz, Maybach and Smart vehicles ' each have a stake in Chrysler with Cerberus wanting to buy out Daimler's remaining 19.9% share before, presumably, finding a buyer for the troubled automaker.

But, the best laid plans of mice and men are often fraught with obstacles with Chrysler LLC being no exception. In fact, judging by competing press releases issued in November 2008, the two companies are far apart in determining a valuation for Daimler's share in Chrysler, a sticking point which could affect the long term survival of the automaker.

Before we look at the current battle over Chrysler, a history lesson of sorts needs to be taught, one that will shed some light on the current acrimonious relationship between Daimler and Cerberus. In 1998, Daimler-Benz purchased the Chrysler Corporation for $37 billion and immediately renamed itself DaimlerChrysler.

Initially, the German giant said that the deal was a merger of equals, but it soon became apparent that Daimler's Stuttgart headquarters would run the combined entity, pushing the Auburn Hills management team to the side. American employees, dealers, and others with a vested interest in the new concern became upset, realizing that their influence in Chrysler was suddenly greatly diminished. On the German side of the house, shareholders complained as they soon realized that Daimler was neglecting Mercedes in a bid to shore up its American operation.

Over time, the relationship between the German and American divisions worsened with DaimlerChrysler finally deciding to sell off Chrysler in 2007 to Cerberus. For just $7.2 billion, Cerberus gained a controlling 80.1% stake in Chrysler with the newly minted Daimler AG holding on to the remaining shares. Historians are rightly calling the Daimler acquisition of Chrysler one of the worst business moves of all time, as the German automaker lost about thirty billion dollars in the sale alone.

Going forward to today, the wrangling between Cerberus and Daimler involves several issues including charges by Cerberus that Daimler 'intentionally and materially' misled Cerberus, breaching its contract by not disclosing Chrysler's leasing and financing practices prior to the sale.

"Daimler has, unfortunately, refused to recognize the gravity of the claims relating to its deliberate conduct that resulted in the impairment of Chrysler's business and added to and multiplied the adverse effects of the current automotive and macro economic environment," Cerberus said. "We are disappointed that Daimler has refused to negotiate in good faith in the face of the plain facts of which they are well aware." Daimler responded by saying that the Cerberus claims were absurd and completely without substance.

An underlying issue in the battle over Chrysler LLC could be Daimler writing down its share in the automaker to zero in the third quarter of 2008. Essentially, Daimler considers its portion of Chrysler LLC to be worthless, a slap at Cerberus who not only paid billions for the automaker, but inherited Chrysler's employee benefit liabilities as well.