Chrysler’s private equity owner Cerberus Capital Management could move closer to exiting the automaker as a result of the proposed deal with Fiat, analysts have said.
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Less than two years after paying over US$7bn for control of Chrysler, Cerberus has agreed to give away more than a third to Fiat without any cash in return, Reuters noted.
Cerberus, with an 80.1% stake in Chrysler, would give Fiat a 35% share for access to the Italian firm’s small car technology and overseas markets and the stark terms of the cash-free deal would leave Cerberus with a diminished stake in an automaker still facing an uncertain future and an alliance that will almost certainly force it to yield some operational control, analysts told the news agency.
Cerberus could still look to limit its losses after clinching gaining US government loans both for Chrysler’s automaking operations ($4bn) and affiliated finance arm Chrysler Financial ($1.5bn), they added.
At the time of the Chrysler deal, Reuters said, Cerberus and founder Stephen Feinberg said the firm’s goal was to rescue a struggling American icon but, after the Fiat deal, Chrysler would be almost 55% owned by Europeans.
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By GlobalData“Basically I think what is happening is that Cerberus is trying to perhaps divert the responsibility for financing of Chrysler,” Automotive Consulting Group president Dennis Virag told the news agency.
“I see Cerberus trying to walk away or get out of the ownership in Chrysler totally,” Virag added. “There is no benefit in maintaining any equity for Cerberus.”
Daimler, meanwhile has written down the book value of its remaining 19.9% investment to zero.
Details of the Fiat alliance are still being discussed, an anonymous banker told Reuters. Unsettled questions include governance and control. With a 35% stake, Fiat is likely going to want board seats at Chrysler.
With key elements remaining to be resolved, there is always a chance that the unusual deal could unravel, another banker said.
Fiat said it would help Chrysler prepare its turnaround plan for US government officials ahead of an initial 17 February deadline.
JP Morgan analyst Himanshu Patel told Reuters the deal appeared to have “minimal downside” for both Fiat and Chrysler and could help the US automaker secure another round of bailout funds but he cautioned Chrysler could still face the risk of failure down the road if the US market fails to recover.
Even after the deal, Cerberus would still own 80% of Chrysler Financial. The firm would like to hold on that arm as well as its stake in GMAC, people familiar with its planning have told Reuters.
