Daimler pays big to unload Chrysler

Kai Ryssdal May 14, 2007

Daimler pays big to unload Chrysler

Kai Ryssdal May 14, 2007

KAI RYSSDAL: You know, the corporate press release can be an interesting thing. Take, just for instance, today’s announcement from DaimlerChrysler — that Cerberus, one of the big U.S. private equity outfits, will be buying Chrysler. That’s what the first paragraph alluded to, anyway.

ASSISTANT: Cerberus will make a capital contribution of $7.4 billion.

A seven-and-a-half-billion-dollar contribution in return for an 80 percent stake in the new Chrysler Holding Company. Fine as far as it goes. Then you keep reading.

ASSISTANT: Five billion will flow into Chrysler Corporation and $1.05 billion will flow into the financial services business.

That is, not into Daimler’s bank account but into getting Chrysler and its financing arm up and running. The press release goes on . . .

ASSISTANT: DaimlerChrysler will receive the balance of $1.35 billion.

But, it really won’t. Because Daimler really wants the deal to work out, so it’s sweetening the pot a little bit.

ASSISTANT: DaimlerChrysler will grant a loan of 400 million to Chrysler.

Which comes out of the $1.35 billion Daimler gets. And let’s remember Chrysler’s not exactly the healthiest car company around right now. It’s in the middle of laying off 13,000 employees.

ASSISTANT: Due to the Chrysler Group’s anticipated negative cash flow until closing in connection with its restructuring plan, the transaction will give rise to a cash outflow of $1.6 billion for DaimlerChrysler.

Which is to say, once you take the 7.4 billion; subtract the money that’s going to the new Chrysler, not Daimler; add in the Daimler loan, plus what it costs to keep Chrysler running tiLl the deal actually gets done; you get, again from Daimler’s own press release:

ASSISTANT: The overall net cash outflow resulting from the transaction will therefore be $650 million.

Outflow, of course, equals money spent. So nine years later, Daimler has to spend another $650 million to get somebody to take a $36 billion dollar invesment in Chrysler off its hands.

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