Merger talks between Chrysler and GM have intensified, several sources reported Thursday night, with GM’s execs and Chrysler’s lenders pushing hard for some sort of combination in the next two to three weeks.
NY Times: [Rick] Wagoner and G.M.’s president, Frederick A. Henderson, are convinced that the automaker is in dire need of the cash, additional revenue and cost savings that a merger could provide, according to several people with knowledge of the talks…
G.M. needs the $11 billion in cash that is currently on Chrysler’s books, and Cerberus is said to be considering a large investment in G.M. stock should the deal be done…
The possibility of a merger is still considered 50-50, according to people briefed on the talks. Cerberus is said to be considering other possible partners for Chrysler, including the alliance of Nissan Motor of Japan and the French carmaker Renault (the two companies develop vehicles together and hold cross-ownership stakes).
However, when asked by Reuters if it was in merger discussions with Cerberus, Chrysler’s majority owner, Renault said, “Non.” Indeed, a merger with GM or Renault is just one of the options Cerberus is considering. (So, does that mean Cerberus is really in charge here? If so, sorry, Rick.)
Reuters: Cerberus Capital Management, Chrysler’s majority owner, is talking to GM about a transaction in which GM could buy some of Chrysler’s assets as an alternative to an outright purchase of its smaller rival, the sources said.
Renault’s interest in Chrysler range from an alliance to an acquisition of Jeep, widely considered to be Chrysler’s most valuable brand, the sources said…
Chrysler assets under consideration for purchase by GM include Chrysler’s top-selling minivan line, a market segment Chrysler pioneered almost 25 years ago, and its truck-production facilities in Mexico, one of the sources said.
Cerberus’ talks with GM also have included the possibility of Chrysler buying GM’s remaining 49-per cent share of GMAC. In one scenario, GM would swap its GMAC stake for Chrysler’s auto operations, sources have said…
Separately, Cerberus is nearing a deal to buy Daimler’s remaining stake in Chrysler, one of the sources said. Any deal Cerberus might make to sell or merge Chrysler with another automaker hinges on Cerberus buying out Daimler’s interest.
Even so, several people familiar with the talks said it was possible that they would break off without any deal and that Cerberus would opt to keep Chrysler running on its own, a strategy it committed itself to when it bought the automaker last year and pledged to restore an American icon.
Chrysler Chief Executive Bob Nardelli said earlier this week that the automaker was talking to a range of potential partners, but also has stressed that the company has a plan to return to profitability on its own.
Still, other observers said the tone and tenor of the Chrysler talks underscored an urgency by Cerberus to back away from a high-profile and loss-making investment.
Meanwhile, the Wall Street Journal, as usual, has more details:
Cerberus Capital Management, which owns Chrysler, is looking to have a stake in a combined GM-Chrysler, according to people familiar with the situation. While some lenders like J.P. Morgan have shown interest in equity in such a deal, several other lenders approached by the parties have passed on the deal.
At this point, GM and Chrysler are far from having a firm deal in hand, people briefed on the negotiations said. Certain members of GM’s board of directors continue to give the deal a cool reception. It is also unclear whether a key element of the talks — swapping Chrysler for GM’s 49% stake in GMAC LLC — will happen, say these people.
Still, GM’s management team is hammering out a potential takeover of Chrysler, and top-level executives remain bullish on the prospects of a combined GM and Chrysler.
While industry analysts have criticised the potential merger as being the equivalent of a Hail Mary, GM believes it can squeeze more than $10 billion in cost synergies from a deal, and get access to Chrysler’s approximately $11 billion cash pile.
We’d love to tell you exactly which bankers are working on this deal, but the perpetual source of this info, The Deal, hasn’t reported it yet. (If you know, give us a shout in the comments or at [email protected])
The Deal’s Dealscape blog does wonder if Cerberus is exerting pressure on another one of its companies, GMAC to force GM into a deal:
GMAC LLC is reportedly tightening its lending standards to the point where a large swath of General Motors Corp. customers may be unable to get financing to buy cars. Might this be part of GMAC’s partial owner Cerberus Capital Management LP’s efforts to strong-arm GM back to the table to discuss a deal to swap GMAC for Chrysler LLC?…
While GMAC claims the reason for the move is because of the frozen credit markets, its timing seems curious. After all, it seems Cerberus is desperate to dump Chrysler, and has talked with any automaker willing to listen in the last few weeks. Parties who reportedly sat down with Cerberus not only include GM, but also Nissan-Renault, Fiat and Tata Motors, which recently bought Jaguar and Land Rover. However, response reportedly has been tepid.
But with GM, Cerberus has an attractive tool to get the carmaker to the table, GMAC. GM can free itself from GMAC’s losses if it simply trades its stake in the finance company for Chrysler. Additionally, Chrysler has cash on its books that GM could use — assuming it doesn’t have to disperse it (either as payment or through litigation) to Chrysler dealerships when they are shut down. However, that’s the catch for GM, integration. GM already has too many brands (as evidenced by its attempts to sell Hummer), and Chrysler will offer three more including the truck-heavy Jeep and Dodge brands. But, the alternative could be worse.
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