Cerberus stepping up efforts to sell Chrysler

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Talks with GM and Renault could result in sale or breakup of the automaker



Cerberus Capital Management LP is stepping up efforts to sell Chrysler LLC to General Motors, according to two news reports late yesterday.

GM executives want to get a deal done with Chrysler's owners by the end of the month, but the parties still are far from having a firm deal in hand, The Wall Street Journal reported on its Web site.

The Reuters wire service said parts of Chrysler may be broken up between both Renault SA and GM.

Both reports cited anonymous sources. A spokeswoman for Renault today denied the company is in talks with Chrysler, Reuters reported.

The Journal reported that bankers -- including J.P. Morgan Chase & Co. -- are encouraging a Chrysler-GM deal. J.P. Morgan is the largest holder of Chrysler debt and also is a major banker for GM, the newspaper reported.

GM has "teams of people" analyzing potential cost cuts, the Journal said. So far, GM has identified about $10 billion in cost savings from a merger with Chrysler -- and is interested in getting access to some $11 billion in cash on Chrysler's books, according to the Journal.

Breaking up the company?

A GM-Chrysler combination faces opposition from GM's unions along with skepticism from industry experts. Some unnamed members of GM's board also have given such a deal a "cool reception," the Journal said.

But GM's top executives "remain bullish" on the prospects of a combined company, according to the report.

Cerberus, which owns an 80.1 percent stake in Chrysler, wants to maintain a stake in the combined GM-Chrysler, the Journal said.

Meanwhile, Reuters reported that Chrysler is considering a wide range of deals with both Renault and GM that could break up Chrysler, Reuters reported, citing people familiar with the talks .

Under this scenario, GM may acquire some of Chrysler's assets as an alternative to an outright purchase of its smaller rival, the sources told Reuters.

Chrysler assets under consideration for purchase by GM include Chrysler's minivan line, a market segment Chrysler pioneered almost 25 years ago, and its truck-production facility in Mexico, one of Reuter's sources said.

The contacts between Cerberus and the automakers remain wide-ranging and preliminary but have been given urgency by the sharp downturn in auto sales that has forced Chrysler, GM and Ford Motor Co. to take steps to cut costs and shore up their cash holdings.

Other deals being considered by Cerberus hinge on whether Chrysler's key assets now have more value separately than together, the sources told Reuters.

Selling off Mopar, Chrysler Financial

As a result, Cerberus is looking at selling its Mopar parts unit, spinning off its engineering operations as a separate company and separating Chrysler Financial, one of the sources said.

The captive finance company could also be merged with GMAC, the GM-affiliated lender in which Cerberus owns a controlling 51 percent stake, several sources told Reuters.

In addition, Cerberus has had talks with GM about acquiring the automaker's remaining 49 percent share of GMAC and that remains a possibility, those sources said.

But all of the potential deals have been complicated and slowed by the volatility in financial markets and frozen credit markets, according to the people familiar with the talks who were not authorized to speak about the discussions.

Market turmoil has made it far more difficult for Cerberus and potential bidders to agree on the value of Chrysler's various parts and GMAC, the sources said.

Cerberus bought its controlling stake in Chrysler from Daimler AG in 2007 for $7.4 billion, but the automaker, like its listed Detroit rivals, has been hit hard by a steep decline in U.S. auto sales to 15-year lows.

The still-ongoing talks between GM and Chrysler have revived discussions about a potential merger that started in early 2007 before Chrysler was sold to Cerberus.

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1. Cerberus, guardian of the gates of hell