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Canadian Union Leader Opposes Private-Equity Deal for Chrysler
Chrysler cars were on display at last month's international auto show in Toronto. Chrysler has four manufacturing plants in Canada.
(By Nathan Denette -- Associated Press)
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A spokesman for Blackstone declined to comment on the firm's interest in Chrysler. Cerberus did not return calls seeking a comment.
David Stowell, professor of finance at the Kellogg School of Management at Northwestern University, said any private-equity suitor would have to win over Chrysler's unions.
"You have massive amounts of cash accumulating in private-equity funds, and they want to put it to work," he said. "But I would be surprised if any private equity firm would pay . . . without having some discussion with unions and retirees in advance to see if they can strike a deal. If they can, then it becomes a very interesting and doable deal for private equity."
Because private-equity firms can borrow huge amounts of money with favorable terms, they make natural partners for Detroit's major players, which are steeped in debt, analysts said. But such firms also would look to cut costs wherever possible.
Putting a price tag on the Chrysler division is difficult because it is closely integrated into its parent company. The value of a deal could change dramatically depending on how it is structured and how much of Chrysler's debt the parent company is willing to keep, analysts said.
A Morgan Stanley research report estimated Chrysler's market value at $6.5 billion, or about one-sixth of the $36 billion that Daimler-Benz paid for Chrysler. That price would be 10 percent of Chrysler's annual sales, making it the "cheapest car company in the world," the report said.
Chrysler is weighed down by an enormous debt burden. A report by Merrill Lynch put Chrysler's liabilities at $52.5 billion, with $31.4 billion in pensions and the rest from post-employment benefits like health care. The estimate exceeds the largest leveraged-buyout offer on record, last week's $45 billion deal for the Texas utility TXU, by private-equity firms Texas Pacific Group and Kohlberg Kravis Roberts.
Staff researcher Richard Drezen contributed to this report.
