Magna peeks into Chrysler’s books—Benz a “fat turkey”?

by Joseph Szczesny (2007-03-10)


2007 Mercedes-Benz CL600

Teams from two different investment firms, Cerberus and Blackstone, showed up in Auburn Hills last week to take a peek at the Chrysler Group's inner workings, insiders have confirmed.

Frank Stronach, Magna chairman, told the Toronto Globe and Mail that his company is looking at inside information on Chrysler after DaimlerChrysler's Dieter Zetsche put it up for sale.

"Where it will go, nobody can predict,'' Stronach told the paper. "Our predicament will be we do not want to compete with our customers,'' Stronach said. Twenty-four percent of Magna's revenue comes from Chrysler but the company also is a major supplier to GM and is now trying to increase sales to Asian and Asian-American carmakers such asToyota.

DaimlerChrysler's representatives reportedly have coughed up plenty of inside information to satisfy the tire-kickers, offering investment banks a close look at the inner workings of its erstwhile partner, the Mercedes-Benz Group.


Lifting the veil

Any company looking at the data, such as Cerberus or Blackstone - which was recently touted in Fortune Magazine as the biggest star in the private equity firmament - is getting some of the company's most sensitive information. Indeed, several people around the industry have suggested that one of the key reasons Magna has stepped as a potential buyer, is that the bid gives the Canadian company a chance to take a much closer look at Chrysler's cost data and purchasing strategy.

Access to the purchasing data also offers potential bidders insight into Mercedes-Benz' cost structure. Bidders as sophisticated as Blackstone could do a bit of reverse engineering to peer into the Mercedes-Benz as a result.

DaimlerChrysler still operate separate engineering groups and manufacturing operations but the two groups do share cost and analytical data on purchased material, which is a big item for both companies since they make relatively few components in house. However, they have a common purchasing department, which shops around for the various bits and pieces needed for the companies' vehicles.

If Chrysler is spun off or sold, Mercedes-Benz itself could easily become an inviting target for private equity funds. The value of the reborn Daimler-Benz would shoot up, but not out of range of the super-liquid investment groups like Blackstone or other like-minded firms in New York and London. In addition, a reborn Daimler-Benz presumably won't have the kind of pension and healthcare liabilities that has made American automakers financially radioactive.

Shorn of Chrysler, Mercedes-Benz and its big truck group could wind up looking like a couple of fat turkeys primed for a hedge-fund Thanksgiving.


Financial arm tempting

DaimlerChrysler Services, the company's finance group, also could be diced up and served up as appetizers to various financial conglomerates around the globe. A reborn Daimler-Benz, however, would barely qualify today as one of the world's top ten automakers today - but the luster of the Mercedes name would make it an attractive target. Moreover, it's now profitable again.

Germans detest American-style private equity funds but they may not be able to stop a determined bidder.

Back in the late 1990s, Juergen Schrempp, the maestro behind the original merger that created DaimlerChrysler, sold the link-up between the two companies, in Germany at least, as a way of protecting Mercedes-Benz from a hostile takeover. In this context, the revived alliance between IG Metall and the United Auto Workers begins to come into focus. The union block on the DaimlerChrysler supervisory board came very close to scuttling the Chrysler Group's planned alliance with China's Chery. The final vote was close, insiders said, but the structure of the board is tilted by German law ever so slightly towards management and thus the measure passed.

In the past, the UAW and IG Metall have never been particularly close but they seem to have decided to set aside their differences to focus on protecting their common interests and very possibly the status quo.