Daimler, Chrysler dream wedding ends in divorce

Frankfurt - Daimler ended a nine-year marriage with Chrysler and said goodbye Monday to one of the biggest-ever transatlantic mergers by agreeing to sell the loss-making US firm for just a fraction of its original purchase price.

As part of its ambitions to become a truly global player, Daimler had acquired Chrysler for 36 billion dollars in 1998 and has ploughed billions more into the US auto maker in subsequent years.

But the group was finally forced to ditch its dream of global domination on Monday when Daimler announced that it was drawing a line under an investment that had turned disastrously wrong by selling it to US private equity firm Cerberus.

Under terms of the deal, scheduled to be completed in the third quarter pending the necessary regulatory approval, Cerberus would pay 5.5 billion euros or 7.4 billion dollars for an 80.1-per cent stake in Chrysler, just a fifth of the original purchase price.

"An affiliate of private equity firm Cerberus Capital Management will make a capital contribution of 5.5 billion euros (7.4 billion euros) in return for an 80.1-per cent equity interest in Chrysler," the world's number five car maker said in a statement.

DaimlerChrysler, which would change its name back to Daimler, would continue to hold a 19.9-per cent equity interest Chrysler, the statement added.

Initially, the deal would cut three-to-four billion euros off DaimlerChrysler's net profit this year, the car maker said.

And the transaction would result in a net cash outflow of 500 million euros for DaimlerChrysler.

But Daimler would now be able to focus on its profitable Mercedes brands and its trucks division in future.

"We've done our homework in our corporate functions and in all of our divisions. As result of our stratetic review, we have a well-defined roadmap to lead us into a food future," said chief executive Dieter Zetsche.

The sale of Chrysler comes as no surprise.

Zetsche had already opened the door to such a move in February.

Originally marketed as a "marriage made in heaven" and seen as a launch pad for Daimler's dreams of becoming a global power, the merger of Daimler and Chrysler in May 1998 very quickly turned sour.

Despite massive cost cutting in 2000 and 2005 when Zetsche, then head of Chrysler, slashed a total 40,000 jobs and shut down numerous plants, the US unit still managed to sustain an operating loss of 1.12 billion euros last year.

Chrysler has been hard-hit this time round by high fuel prices and a consumer shift away from lucrative gasoline-guzzling trucks and large sports utility vehicles.

In his statement on Monday, Zetsche said the sale of Chrysler would enable Daimler to focus on being "the leading manufacturer of premium vehicles and a provider of premium services in every market segment we serve worldwide."

Chrysler would retain all of its financial obligations for employees' pension and healthcare benefits, meaning that the deal would not burden Daimler with any debt, it said.

The powerful US labour union, the United Auto Workers or UAW, welcomed the deal.

"The transaction with Cerberus is in the best interests of our UAW members, the Chrysler Group and Daimler," said UAW President Ron Gettelfinger.

Cerberus Capital Management Chairman John Snow said: "Cerberus believes in the inherent strength of US manufacturing and of the US auto industry. Most importantly, we believe in Chrysler."

Investors also welcomed the deal, with DaimlerChrysler shares showing gains of 2.49 euros or 4.11 per cent at 63.10 euros in early afternoon trade on the Frankfurt stock exchange.

However, analysts' reactions were more mixed.

"Our initial assessment is that the terms and conditions of the deal are a bit less favourable than we expected," said Commerzbank analyst Daniel Schwarz.

"Chrysler's part of the financial services division is included in this, which makes the deal less favourable."

Schwarz would therefore review his "buy" recommendation on the stock, he said.

Nomura analyst Michael Tyndall was similarly guarded.

"From an historical perspective, it's difficult to get overly excited" about the deal, he said.

"We are disappointed that DaimlerChrysler has effectively given away both the industrial and financial services operations."

Nevertheless, the sale "will substantially imporve earnings visibility for the stock and free up management capacity to focus on the remaining businesses," Tyndall said.

Agence France Presse