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. Last Updated: 07/27/2016

Chrysler to Be Sold for $7.4 Bln

AUBURN HILLS, Michigan -- DaimlerChrysler reached an agreement early Monday to sell the struggling Chrysler Group to Cerberus Capital Management, a private equity firm that specializes in restructuring troubled companies, for $7.4 billion.

The deal unwinds a 1998 merger that was meant to create a trans-Atlantic automotive powerhouse. DaimlerChrysler scheduled an 8 a.m. news conference to discuss the sale.

Under terms of the deal, Cerberus would take 80.1 percent of Chrysler, with DaimlerChrysler keeping 19.9 percent. The new company would be called Chrysler Holding, and would become the first of the Detroit carmakers to be privately owned.

Meanwhile, DaimlerChrysler shareholders will be asked to change the company's name to Daimler AG, the automaker said Monday. It said its board of management had approved the sale, subject to the approval of its supervisory board and regulatory officials.

The prospect of private ownership had alarmed Chrysler's labor unions, which have come out strongly against the sale of the company, fearful that an investor might try to break up the company or seek cuts in wages and benefits.

But in the news release, Ron Gettelfinger, the president of the United Automobile Workers union, said the deal "was in the best interests of our UAW members, the Chrysler Group and Daimler."

John Snow, a former treasury secretary and the chairman of Cerberus, added: "Cerberus believes in the inherent strength of U.S. auto manufacturing and the U.S. industry. Most important, we believe in Chrysler."

A sale of Chrysler to Cerberus "will shake the ground under people's feet in a huge way," said Kevin Boyle, a professor at Ohio State University who has written extensively about the automotive industry in Detroit.

Under the terms of the deal, DaimlerChrysler will transfer Chrysler to Cerberus as a debt-free company. The new company will take responsibility, however, for $18 billion in pension and health care liabilities for Chrysler's current and retired workers.

Of the $7.4 billion, Cerberus agreed to invest $5 billion in the new Chrysler and $1.05 billion in Chrysler's financial arm. The remaining $1.45 billion will go to DaimlerChrysler. In addition, Daimler Chrysler agreed to invest $600 million in Chrysler.

The deal is expected to be finalized in the third quarter.

The sale would take apart a deal intended to create a blueprint for the global automotive industry that sank under the difficulty of putting a mass market brand, Chrysler, together with Mercedes-Benz, a luxury company, while keeping both prosperous.

It would also be a watershed for private equity companies, which have become audacious bidders for companies as varied as retailers, steel companies and airlines in the last few years.

But never before has one of them purchased a company as iconic as Chrysler, whose Dodge and Jeep brands are so embedded in American culture that the company's near-bankruptcy led to a federal bailout in 1979.

With General Motors, Ford Motor and Chrysler all fighting big foreign competitors like Toyota, "in some ways, the American automobile industry is almost unrecognizable from what it was 25 or 30 years ago," Boyle said.

Under the latest turnaround, which calls for the company to cut 16 percent of its work force, or 13,000 jobs, Chrysler is not expected to be profitable again until 2009. DaimlerChrysler is scheduled to announce its first-quarter earnings Tuesday.

Cerberus emerged as the leading bidder for Chrysler late last week, people involved in the transaction said.

Along with Cerberus, other interested bidders in Chrysler included Blackstone, which was exploring a purchase in conjunction with Centerbridge Partners.

Magna International, the Canadian auto parts company, and the Tracinda Corporation, the holding company owned by the billionaire Kirk Kerkorian, also said they had made bids for Chrysler.

Over the last few days, officials at Cerberus and DaimlerChrysler have been involved in detailed discussions, which have been shepherded by JPMorgan, DaimlerChrysler's investment adviser.