Chrysler: Could There Be A Takeover Without Sale?

As DaimlerChrysler AG's top management weighs the possibility of a sale of the Chrysler Group, a number of events weakened the latter's prospects. The first reason is the slump in performance. This is coupled with the refusal of United Auto Workers (UAW) union to give Chrysler the health care concessions it granted to the automaker's larger Detroit rivals.

For the first time, last Tuesday, Dieter Zetsche, DaimlerChrysler's CEO, alluded to other pressures bearing on the Germany-based automaker. "Top performance is the best protection against potential threats, and that applies for DaimlerChrysler as well," Zetsche said at the Geneva Motor Show. He is anxious of the risk of a possible takeover of the company.

Financial experts also expressed their accord with Zetsche's prediction. Experts said DaimlerChrysler could be a takeover target because its stock market valuation has been weighed down by Chrysler's uneven performance. In the past, the automaker was protected by the Deutsche Bank which is its largest shareholder. However, the bank has decreased its stake. Additionally, it wanted to drop its remaining 4.4 percent DaimlerChrysler holding.

"In today's world, a 50 billion euro ($65 billion) market cap doesn't protect you from those considerations. Zetsche added, "In the case that the current market capitalization of DaimlerChrysler doesn't represent the potential value of the group - and I'm convinced that this is the case - this of course triggers the interest of third parties to investigate if they're able to unlock hidden or undeveloped value."

"Potentially, they are a takeover target," said Juergen Pieper, an analyst at Metzler Bank which is based in Frankfurt. Pieper estimates DaimlerChrysler's assets are worth $30 billion more than its combined stock value. "If you split it up, you can generate value. Mercedes is one of the great brands of the world."

Zetsche earlier said that the first priority was to deliver on the restructuring plan which was announced last month. He reiterated that no option, including keeping Chrysler, had been ruled out. Other analysts who saw Zetsche in talks in London, New York and Boston said he would not discuss sale or spinoff plans with them. But they came away with the impression that DaimlerChrysler's preferred option would be the sale of Chrysler.

General Motors Corp., the largest automaker in the industry, was also reported having serious talks with Daimler regarding the potential of Chrysler to GM. Nonetheless, Zetsche would not confirm that sale talks were under way.

"I can confirm that nine months ago or more, some discussions between the Chrysler Group and GM - I think initiated by GM but this doesn't matter - took place to discuss some potential common interests in some segments. I think large SUVs were discussed. Beyond that, I can't confirm anything," said Zetsche, who ran Chrysler for nearly five years.

Apprehensions and predictions swiftly spread. Transmission is as quick as a window motor opening and closing car windows. On Monday, people familiar with the discussions said a team from Cerberus Capital Management met with Chrysler executives in Auburn Hills to discuss a possible bid for the company. The Blackstone Group, a big private equity firm, is also interested in purchasing Chrysler.

Zetsche said the management's decision to consider all options for Chrysler was not due to outside pressures. "The (DaimlerChrysler) AG management and the Chrysler management is not acting in reaction to pressure but in reaction to its own thinking and its own strategic process," he said. Zetsche stressed that the process did not take place only in Stuttgart and that Chrysler CEO Tom LaSorda was involved early on.

"A small, select group of the AG board, and definitely nobody of the supervisory board, took on this task to understand where we are, what the going-forward process should be, and ultimately deciding to look at further options as well," noted Zetsche.