DaimlerChrysler announced today it will sell 80.1 percent of its Chrysler Group holdings to Cerberus Capital Management LP for $7.4 billion, according to the Associated Press.
The move was seen as a way for the German-based automaker
to get out of pension and health cost woes at Chrysler Group. Cerberus, on the other hand, is taking a risk by assuming billions of dollars in pension and retiree health care costs at Chrysler, AP noted.
The prospect of a sale to a private equity firm had worried unions in the United States and Canada because of the firms' tendency to slash costs and jobs.
Due to the new corporate structure, the name of DaimlerChrysler AG is to be changed to Daimler AG. The Truck Group remains a part of Daimler AG and the move will not affect Daimler unit Freightliner LLC, which includes U.S. truck making companies Freightliner, Sterling and Western Star.Daimler will retain 19.9 percent of Chrysler and continue to work with it on drive systems, purchasing, sales and financial services outside North America. But it was clear that DaimlerChrysler and its chief executive Dieter Zetsche, who tried to prop up sales in the U.S. with his "Dr. Z" television commercials, had lost confidence that a combined Chrysler and Daimler could be a worldwide automotive leader.
"We determined that DaimlerChrysler, as currently structured, would not provide the best" framework, Zetsche told reporters in Stuttgart.
Shareholders reacted positively. DaimlerChrysler's U.S. shares rose $2.98, or 3.77 percent, to $82 in this morning's trading.
DaimlerChrysler said the deal is likely to be completed by the third quarter and that it would reduce its overall profit by as much as $5.4 billion for 2007.