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Subject Cerberus to buy 80 percent of Chrysler for $7.4B
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Original Message The Associated Press

FRANKFURT, GERMANY — German-based DaimlerChrysler said today it will sell almost all of money-losing Chrysler to a private equity firm for $7.4 billion, backing out of a troubled 1998 takeover aimed at creating a global automotive powerhouse.

Eighty percent of Chrysler Group, burdened by high pension and health costs and declining market share in the United States, will be sold to Cerberus Capital Management, which is taking a huge risk by agreeing to take on billions of dollars in pension and retiree health care costs at Chrysler.

Chaired by former U.S. Treasury Secretary John W. Snow, Cerberus has steadily been building strength in the automobile business. It led a consortium that bought a majority stake last year in General Motors Acceptance Corp., the financial arm of GM, and plans to invest in ailing auto parts giant Delphi.

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. But United Auto Workers President Ron Gettelfinger on Monday called the sale to Cerberus the best choice.

Daimler Chrysler AG, which paid $36 billion to take over Chrysler almost nine years ago, 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’re confident that we’ve found the solution that will create the greatest overall value — both for Daimler and Chrysler,” said Zetsche, who oversaw Chrysler before becoming DaimlerChrysler CEO in 2006. “With this transaction, we have created the right conditions for a new start for Chrysler and Daimler.”

Shareholders reacted positively, sending DaimlerChrysler’s shares up more than 7 percent after the deal was announced, before settling back at 64.04 euros ($86.36) for a gain of 5.6 percent.
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