GM bid sparked Chrysler auction
'Long-shot' offer still on the table as other proposals are expected this week.
General Motors Corp. has a bid on the table for the Chrysler Group and remains a long-shot candidate to acquire the struggling U.S. division of DaimlerChrysler AG, The Detroit News has learned.
While GM's offer, made in late January, was initially rejected by DaimlerChrysler, the bid is still active as other potential buyers gear up to make their own proposals this week.
GM's bid has three components but does not include any cash payment for Chrysler, according to people familiar with the situation.
To acquire Chrysler, GM offered to give DaimlerChrysler a minority stake in GM stock of less than 10 percent.
In addition, the proposal called for DaimlerChrysler to pay GM more than $1 billion to defray Chrysler's health care costs, and then team up with GM to seek financial concessions for Chrysler from the United Auto Workers.
The GM proposal was rejected as too low by DaimlerChrysler, according to people close to the talks.
The rejection then prompted DaimlerChrysler CEO Dieter Zetsche to go public on Feb. 14 that "all options" were being explored for Chrysler.
Zetsche's announcement triggered a rush of interest in Chrysler from heavyweight Wall Street investors as well as the Canadian auto supplier Magna International Inc.
Last week, Magna made a provisional offer to acquire Chrysler, according to a source close to Magna's board of directors.
One auto analyst, Bret Hoselton of KeyBanc Capital Markets, said in a research report Friday that Magna and an unnamed private equity partner had offered to acquire Chrysler for $4.7 billion.
However, the source close to Magna said Sunday that the supplier is still talking to several private-equity firms about potential partnerships.
The head of the Canadian Auto Workers said Sunday that Magna's bid for Chrysler did not come as a surprise.
"I always thought they were serious," said CAW President Basil "Buzz" Hargrove. "The question is what shape is it going to take, and will it be successful. They are not going to be the only bidder."
People close to the sale process said two major private-equity contenders are likely to weigh in with bids this week -- Cerberus Capital Management and a joint effort by the Blackstone Group and Centerbridge Partners.
Cerberus and Blackstone are in the final stages of formulating their proposals. Both groups have been aggressive investors in the automotive sector and are said to be keenly interested in a Chrysler acquisition.
Cerberus has hired former Chrysler chief operating officer Wolfgang Bernhard as an adviser, a move that could strengthen its position in the bidding process.
GM may still be contender
But even with Magna and private-equity players in the bidding, GM could still prove a force to be reckoned with.
GM Chairman Rick Wagoner first discussed a Chrysler deal with Zetsche in December, according to people familiar with the discussions.
GM, the No. 1 U.S. automaker, was seen by DaimlerChrysler as a natural buyer for Chrysler.
The talks focused on how GM could absorb all of Chrysler's operations and possibly use the deal to leverage historic cost-saving concessions from the UAW.
But GM was unwilling to pay any cash for Chrysler, and insisted that any approach to the UAW be made together with DaimlerChrysler.
When the GM offer proved inadequate, DaimlerChrysler then moved to open up the bidding process to other interested parties.
However, GM and DaimlerChrysler have continued to talk about a possible Chrysler deal, according to people with knowledge of the talks.
Fritz Henderson, GM's chief financial officer, has met several times with DaimlerChrysler CFO Bodo Uebber and chief strategist Ruediger Grube. Wagoner and Zetsche have also met periodically.
One person close to the situation said GM is considered a "long shot" to emerge as the winning bidder for Chrysler. Another person involved in the process said GM appears to be "waiting in the wings" if a private-equity deal does not materialize.
DaimlerChrysler declined to comment Sunday on the bidding process. A GM spokesman declined to discuss whether the automaker has made an offer for Chrysler.
"We've said often in this process that we have conversations with other automakers from time to time," said Tony Cervone of GM. "Often they don't lead to anything.
People close to the sale process said the German automaker is anxious to report progress soon on a potential Chrysler deal, although company officials are trying to dampen speculation of an announcement at its annual shareholders meeting on April 4 in Berlin.
Stocks soar on sale news
Chrysler's $1.5 billion loss last year was the final straw for DaimlerChrysler shareholders who have been highly critical of the 1998 acquisition of the U.S. automaker by the former Daimler-Benz AG.
The potential sale of Chrysler has caused a near-euphoric reaction among DaimlerChrysler shareholders. On Friday, the company's stock soared to $82.36 -- its highest point in six years.
Estimates of Chrysler's value vary widely, but some analysts say its unfunded health care liabilities may largely offset the value of the industrial assets, excluding Chrysler's share of DaimlerChrysler's financial services. Chrysler has $17 billion in health care liabilities, which could be reduced if the automaker obtains health care concessions from the United Auto Workers similar to those granted to GM and Ford Motor Co.
One analyst said potential bidders might ask DaimlerChrysler to contribute more toward the liabilities as part of a deal, but "in our view, it's not necessary for them to write a big check."
With more bids possibly coming in this week from Cerberus and Blackstone, the stock could be poised for another wild ride.
"This is going to be an important week," said Hargrove, "and an interesting week."
