**Cerberus and Chrysler**
GROUP 3 Morning;
- Researched by KIM Hyun Cheol
- Researched & Written by LIM SEON KYU, Trinh Thai Trung
- Written and Edited by OK CHO RYONG
__ 1. Cerberus Capital Management__
1.1 Company Overview
Established in 1992, Cerberus is one of the largest private equity investment firms in the United States based in New York City. Asset consisted of U$ 24billion; it is the major shareholder of Daimler Chrysler holding 80% of the shares together with other 100 investors. In addition, it is the shareholder of GMAC financial consulting with 51% of the shares. It is, with no doubt, profit-making private equity fund with highest position within the industry.
1.2. Investment Philosophy
- Long-term investment horizon and focus on value creation.
- Invest in undervalued companies and their people, and help them to realize their potential.
- Believe competition makes the global economy more productive and more efficient.
- Partnering with portfolio companies to help them become industry leaders.
- Focus on the future through prudent capital investment, R&D, new product marketing, talent development, improved operations and appropriate strategic acquisitions
1.3. Management
1) Founder: Steve Feinberg
[ Profile ]
* Born: 29-Mar-1960
* Birthplace: Spring Valley, NY
* Gender: Male
* Religion: Jewish
* Race or Ethnicity: White
* Party Affiliation: Republican
* Nationality: United States
* Executive summary: Cerberus Capital Management
* University: BA Politics, Princeton University (1982)
* Career
- Cerberus Capital Management Co-Founder and CEO (1992-)
- Drexel Burnham Lambert
- Defend America PAC
- Joe Lieberman for President
- Romney for President
2) Executives
| Name | Occupation | Birth | Known for |
| Frank W. Bruno | Business | c. 1965 | Cerberus Global Investments |
| Thomas A. Dattilo | Business | c. 1951 | CEO of Cooper Tire & Rubber, 2000-06 |
| Steve Feinberg | Business | 29-Mar-1960 | Cerberus Capital Management |
| W. Grant Gregory | Business | c. 1942 | Chairman of Touche Ross, 1982-87 |
| Mark A. Neporent | Attorney | c. 1957 | COO of Cerberus Capital Management |
| Seth P. Plattus | Attorney | c. 1961 | CAO of Cerberus Capital Management |
| Dan Quayle | Politician | 4-Feb-1947 | Vice President under George H.W. Bush |
| John Snow | Government | 2-Aug-1939 | US Secretary of the Treasury, 2003-06 |
| Lenard B. Tessler | Business | c. 1951 | Cerberus Capital Managment |
3) Team : Operation Professionals
1.4. Investment Track Record
* Pharmaceuticals -Bayer's plasma products business
* Paper products - MeadWestvaco's paper business and Georgia Pacific Corporation
* Government Services (Military, Energy, and Food & Drug) and Netco Government Services.
* Real Estate - LNR Property and Kyo-ya
* Retail - Albertson's, Inc.,
* Automotive - Peguform, GDX Automotive, and Chrysler.
* Financial Services - General Motors sold a 51% stake in its GMAC finance unit to an investor group led by Cerberus Capital Management in November 2006. GM expected to receive $14 billion over the next three years from the sale of General Motors Acceptance Corp. In December 2006, Cerberus acquired the Austrian bank BAWAG P.S.K. for a reported EUR3.2 billion. In August 2007, Cerberus announced that it was closing one of their mortgage companies, Aegis Mortgage. It owns half of a 9.9 % share (5%) with the Gabriel Group in Bank Leumi, purchased in 2005,[22] but as of April 19, 2009, it was decided to sell in order to boost capital.[23]
2. Chrysler
2.1 Background:
* Founded: June 6, 1925
* Founder: Walter Chrysler
* Head quarters: Auburn Hills, Michigan, USA
* Key People: Sergio Marchionne (CEO), C. Robert Kidder (Chairman), Jim Press (Deputy CEO)
* Products: Automobile, light trucks and vans
* Employees: 58,000 (2008)
2.2 Company overview
a. History
Chrysler Group, LLC is an American automobile manufacturer headquartered in the Detroit suburb of Auburn Hills, Michigan. Chrysler was first organized as the Chrysler Corporation in 1925. The company was founded by Walter P. Chrysler on June 6, 1925, when the Maxwell Motor Company (est. 1904) was re-organized into the Chrysler Corporation.
In Jan, 1924, Walter Chrysler launched the well-received Chrysler automobile. The Chrysler was a 6-cylinder automobile, designed to provide customers with an advanced, well-engineered car, but at a more affordable price than they might expect. Among the innovations in its early years would be the first practical mass-produced four-wheel hydraulic brakes, a system nearly completely engineered by Chrysler with patents assigned to Lockheed, and rubber engine mounts to reduce vibration. Chrysler also developed a road wheel with a ridged rim, designed to keep a deflated tire from flying off the wheel. This safety wheel was eventually adopted by the auto industry worldwide.
b. Organization
* Chrysler: Passenger cars, SUVs, and minivans
* Dodge: Passenger cars, minivans, trucks and SUVs
* ENVI: division for creating electric-drive vehicles and related advanced-propulsion technologies.
* Jeep: SUVs
* Global Electric Motorcars: Battery Electric low-speed vehicles
* Mopar: Replacement parts for Chrysler-built vehicles. Also comprises Mopar Performance, a subdivision providing performance aftermarket parts for Chrysler-built vehicles.
* Chrysler Financial: Financial services for Chrysler customers and dealers
2.3 Recent Milestone
From 1998 to 2007, Chrysler and its subsidiaries were part of the German based DaimlerChrysler AG (now Daimler AG). Prior to 1998, Chrysler Corporation traded under the "C" symbol on the New York Stock Exchange. Under DaimlerChrysler, the company was named "DaimlerChrysler Motors Company LLC", with its U.S. operations generally referred to as the "Chrysler Group".
On May 14, 2007, DaimlerChrysler announced the sale of 80.1% of Chrysler Group to American private equity firm Cerberus Capital Management, L.P., although Daimler continued to hold a 19.9% stake. This was when the company took on its current name. The deal was finalized on August 3, 2007. On April 27, 2009, Daimler AG signed a binding agreement to give up its 19.9% remaining stake in Chrysler LLC to Cerberus Capital Management and pay as much as $600 million into the automaker's pension fund.
On April 30, 2009 Chrysler LLC filed for Chapter 11 bankruptcy protection and announced a plan for a partnership with Italian automaker Fiat. On June 1, Chrysler LLC stated they were selling some assets and operations to the newly formed company Chrysler Group LLC. Fiat will hold a 20% stake in the new company, with an option to increase this to 35%, and eventually to 51%.
On June 10, 2009, the sale of most of Chrysler assets to "New Chrysler", formally known as Chrysler Group LLC was completed. The federal government financed the deal with US$ 6.6 billion in financing, paid to the "Old Chrysler", formally called Old Carco LLC. The transfer does not include eight manufacturing locations, nor many parcels of real estate, nor equipment leases. Contracts with 789 U.S. auto dealerships, which are being dropped, were not transferred.
2.4 Deal Structure
Cerberus takes over Majority Interest in Chrysler Group and related Financial Services Business for $7.4 Billion from DaimlerChrysler.
Key elements in the deal structure:
• Cerberus pays $7.4 billion for an 80.1 percent share of Chrysler (all figures in US dollars).
• Daimler keeps a 19.9 percent equity stake of Chrysler.
• Pension and health care liabilities stay with Chrysler, leaving Daimler essentially free from that burden.
• Transaction expected to result in net cash outflow of $0.65 billion for DaimlerChrysler
Some quotes:
• Equity ratio of DaimlerChrysler's industrial business is expected to be over 40% by the beginning of 2008
• DaimlerChrysler's net profit according to IFRS in 2007 to be reduced in a range of $4.1-5.4 billion
• Extraordinary Shareholders' Meeting to decide on change of name to Daimler AG
• DaimlerChrysler CEO Dieter Zetsche on the realignment of DaimlerChrysler AG: "We will be the leading manufacturer of premium vehicles and a provider of premium services in every market segment we serve worldwide."
• UAW President Ron Gettelfinger: "The transaction with Cerberus is in the best interests of our UAW members, the Chrysler Group and Daimler."
• 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."
Structure of the transaction:
• Cerberus makes a capital contribution of $7.4 billion in return for an 80.1% equity interest to form a new company, Chrysler Holding LLC. 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
• 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
• 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.
2.5 Results and Current Situation
• Cerberus expected the carmaker to return to profitability in roughly three year’s time. Quoted by Cerberus boss John Snow to reporters: "I think you'll see that Chrysler will be in much better shape within three years. This is a plan to get it back to profitability."
• However, after two years, Chrysler files to Seek Bankruptcy Protection.
• President Obama forced Chrysler into federal bankruptcy protection on Thursday, April 30th 2009, nearly two years after the deal of Cerberus.
• The Chapter 11 bankruptcy filing of Chrysler LLC will likely wash out any investment Cerberus Capital Management LP had in the carmaker. As part of the automaker's decision to file for Chapter 11 bankruptcy protection, Cerberus will retain the assets of Chrysler Financial, the auto financing arm. It will work through the existing portfolio, which will hopefully generate a modest income stream as the loans come to maturity.
• Cerberus is headache by its investment in Chrysler. Cerberus and dozens of co-investors injected $7bn, much of which was lost when the carmaker went into US government-sponsored bankruptcy. Even though the US car industry fell into a far worse hole that most observers predicted, that kind of outcome doesn’t help a buyout firm’s reputation with investors.
• Moreover, Cerberus in May lost some of 51% stake it bought alongside other in GMAC, when the US injected $7,5bn to rescue the car finance firm and it merged with Chrysler Financial. The only good news is that at least the business avoided bankruptcy and may improve in the future.
3. GMAC Financial Services
3.1 Overview
GMAC Financial Services is a global finance company operating in and servicing North America, South America, Europe and Asia-Pacific. GMAC specializes in automotive finance, real estate finance, insurance, commercial finance and online banking.
Until 2006, GMAC was a wholly owned subsidiary of GM. On Nov. 30, 2006, GMAC began a new era as an independent finance company when GM sold a 51 percent stake in the company to a group of investors led by Cerberus Capital Management, L.P.
Dec. 24, 2008 was a key turning point in GMAC’s history when it was approved as a bank holding company by the Federal Reserve Board under the Bank Holding Company Act.
Another defining moment for the company was when GMAC entered into an agreement with Chrysler in April 2009 to provide auto finance products and services to Chrysler dealers and customers. This allowed GMAC to leverage its core strength of auto financing and become part of a solution with the U.S. government to restructure the auto industry.
In May 2009, GMAC’s ownership structure was amended again when GM and Cerberus significantly reduced their holdings in GMAC, leading to future diversity in the ownership structure of the company.
As of June 30, 2009, the company had approximately $181 billion in assets, with 15 million customers worldwide and the company reported after-tax net loss of $3.9billion for the second quarter of 2009.
3.2 Cerberus, GMAC & GM Motors
To raise money for reorganization, General Motors divested various assets including GMAC. This divestiture was accelerated at the prompting of investor Kirk Kerkorian and his former representative on GM's board, Jerome York.
Cerberus Capital Management acquired 51 percent of GMAC from General Motors in November, 2006 for $7.4 billion. Investors also include Citigroup's private equity arm and Aozora Bank of Japan. Aozora lost $ 137 million to Bernard L. Madoff Investment Securities LLC.
In 2007, Cerberus purchased an 80% stake in Chrysler, promising to bolster the auto maker’s performance by operating as an independent company. In 2008, the plan collapsed due to an unprecedented slowdown in the U.S. auto industry and a lack of capital. In response to questioning at a hearing before before the House committee on December 5, 2008 by Rep. Ginny Brown-Waite, Chrysler President and CEO Robert Nardelli said that Cerberus' fiduciary obligations to its other investors and investments prohibited it from injecting capital
3.3. Recently; The U.S. Government, Cerberus, GMAC & GM Motors
As of October 15, 2008, GMAC had $173 billion of debt against $140 billion of income-producing assets (loans and leases), some of which are almost worthless, in addition to GMAC Bank’s $17 billion in deposits (a liability). Even if GMAC liquidated the loans and leases, it couldn’t pay back all of its debt.
In December 2008, the U.S. Treasury invested $5 billion in GMAC by buying preferred stock which carries a 9 percent dividend, but had no voting rights. Treasury also loaned GM nearly $900 million to buy GMAC stock. By investing an additional $7.5 billion in GMAC LLC in May 2009, the U.S. government gained majority control of the company, which included voting rights. [22] Federal regulators waived rules that separate banking and commerce, which cleared the way for GMAC to take over new loans for Chrysler car buyers and dealers. The Federal Deposit Insurance Corporation (FDIC) gave GMAC access to the Temporary Liquidity Guarantee Program that allows companies to borrow money at lower interest rates. The FDIC created the program in October 2008 in order to help banks borrow money by promising to repay investors if the banks defaulted. If GMAC is unable to repay the loans guaranteed by the FDIC, the agency could be forced to raise the money through a special assessment on banks. A rule exception has been imposed that would not restrict the amount of loans that GMAC could make to Chrysler's customers because Cerberus Capital Management owns in part, both firms.
On March 30, 2009, it was announced that Cerberus would lose its controlling stake in Chrysler.[15] Cerberus will maintain a controlling stake in Chrysler’s financing arm, Chrysler Financial. Cerberus will utilize the first $2 billion in proceeds from its Chrysler Financial holding to backstop a $4 billion December 2008 Treasury Department loan given to Chrysler. In exchange for obtaining that loan, it promised many concessions including surrendering equity, foregoing profits, and giving up board seats.
On April 30, 2009, Cerberus ceded ownership of Chrysler, and the car company declared bankruptcy protection and announced that GMAC will become the financing source for new wholesale and retail Chrysler cars.
Source:
www.wikipedia.org
www.money.cnn.com
www.ceberuscapital.com
www.chryslerfinancial.com
www.forbes.com
www.thedeal.com
www.nytimes.com
www.gmacfinancial.com
www.moneytoday.co.kr
