Cerberus bags Nardelli for Chrysler

August 6, 2007

nardelli.jpgA name leaks out as new CEO for Chrysler. It is Robert Nardelli, recently deposed head of Home Depot. Why Nardelli? Why an anonymous leak? What are the implications for Chrysler’s future?

The fate of Chrysler is now in the hands of Private Equity organization Cerberus. If step one is win the take-over battle, step two is installing the top management team to execute the transformation plan.

It is difficult to conceive of step one being completed without parallel efforts occuring to secure the person or persons believed capable of getting the job done. Sometimes the leader has been in place before the venture capital is sorted out.

The leak

It was Associated Press that broke the news.

Chrysler’s new private owners have picked former Home Depot boss Bob Nardelli to head the No. 3 U.S. automaker in its effort to return to financial health, a person close to the process said Sunday

The leak was rapidly followed by official confirmation. Bob Nardelli has been appointed. The complex twists and turns in Chrysler’s fortunes continue.

Recent events

German auto magnate Dieter Zetsche had headed the Merger between Chrysler and Daimler. But the move failed to deliver its promise of a transition to a globally competetive firm. The escalating debts at Chrysler led Zetsche first to indicate that all options had to be sonsidered. Eventually, the ultimate option was exercized, and Chrysler put up for sale. In May 2007, Cerberus Capital Management won over other bids.

There were further twists to the tale. The planned finance packages could not be sold to the finance houses. With a jittery financial context, it seemed that the deal would fall through. But where there’s a will there’s a way. Daimler even played a part in financing its own sale. The deal squeeked through.

Why Nardelli?
Private Equity deals rely on having a clear plan for recovery of investments. The financials often indicate assets that can be sold off to that effect. Sometimes the deal implies replacement of lethargic leadership with others more willing to ‘do what it takes’ to ‘liberate’ those under-utilized assets. Detractors point to the excessive zeal from such slash and burn leaders, and lack of concern for the historical purpose and values of the target organization.

Nardelli is a controversial figure. But the pattern of his leadership behavior may fit rather well for asset liberation. He is reputed to be high-handed and authoritarian. These may not be
particularly desirable characteristics, particularly for colleagues, including former Chrysler head Tom La Sorda, They may, however, appropriate for circumstances where speed outweighs consensus in decision-making.

Nardelli’s removal from Home Depot was attributed partly to a high-handed style particularly over his remuneration demands. It seems likely that such behaviors would have been overlooked, if the company had been able to achive its aspirations of growth under his leadership (which were probably unrealistic, but that’s another issue).

The new job offers a fascinating case study. (Not so fascinating as tough for employees, almost certainly). Will such a style fulfill the requirements of Cerberus and its future plans for the company? The conventional wisdom is that this sort of deal will provide generous financial rewards for the key players. In which case Nardelli’s leadership abilities will outweigh the bevaors that contributed to his problems at Home Depot. In either event, Cerberus will have obtained the leader they believed they needed and deserved.


Magna under the microscope over Daimler Chrysler

May 14, 2007

250px-cerberus-blake.jpgoleg_deripaska.jpg

Canadian firm Magna comes under renewed scrutiny as a potential bidder for Chrysler through its recent backing from Russian billionaire Oleg Deripaska. As the complex leadership story unfolds, a new suitor, Cerberus appears centre-stage.

Stop Press

The following addressed the Chrysler deal as most commentators saw it in early May. I added the last paragraph as Autoworld blogs began touting a new suitor for Chrysler. By the end of the day (Monday 14th May) the whole post appears to have been overtaken, as I cautioned:

How to make sense of it? It’s worth bearing in mind there may still be other players waiting to enter the drama. There may still be a few more twists and turns before we find out Chrysler’s fate.

The twist came sooner than I expected, with the dramatic news that US private equity firm Cerberus Capital Management is to buy a majority stake in Chrysler

The Original posting follows ..

The future of Chrysler has been the subject of increasing speculation since Dieter Zetsche, Chief executive of parent Daimler Chrysler, admitted recently that the group has started negotiations with a number of parties about its sale.

A firm mentioned as interested in acquiring Daimler is Magna. The firm is a relative newcomer, founded by an Austrian entrepreneur Frank Stronach. Mr Stronach emigrated to Canada in the 1950s, and built up a successful auto-business. One of its interesting features is its Governance structure. According to the company web-site,

In 1971 Mr. Stronach introduced his management philosophy, known as Fair Enterprise, to Magna. Fair Enterprise is based on a business Charter of Rights that predetermines the annual percentage of profits shared between employees, management, investors and society, and makes every employee a shareholder in Magna. These rights are enshrined in a governing Corporate Constitution.

Enter Oleg

There has been substantial investment by a Russian organization Basic Element, headed by Oleg Deripaska. [Photo above by A. Sazonov, from MosNews Archive]. Rated up there with Ambramovitch as one of the world’s richest individuals, Oleg dominates the Russian metals industry through his RUSAL organization.

The story was picked up by Forbes:

A Russian industrial conglomerate will sink $1.54 billion into auto parts supplier Magna International Inc., raising speculation that the Canadian company is generating cash for a bid to buy Chrysler …After the annual meeting, Magna founder and Chairman Frank Stronach said he did not think the investment would have any bearing on the company’s efforts to buy Chrysler, although he thought the Russian partner would make Magna more attractive to Chrysler’s German parent, DaimlerChrysler AG.

While Magna continues to receive attention, the Russian connection, and alleged side-deals leave some doubt that the move will be straightforward.

Leadership issues

The story is replete with leadership issues. This is partly because of the different levels at which it is playing out. Considering the parent company Daimler Chrysler with its celebrated and wealthy leader, Dieter Zetsche broadens it to a global scale. Enter a Russian entrepreneur in cahoots with a Canadian business leader. Then there is Chrysler, still a large outfit, and one of the gang of three ailing American auto-giants, with its increasingly beleaguered leader, Tom LaSorda, a former GM executive.

How to make sense of it? It’s worth bearing in mind there may still be other players waiting to enter the drama. There may still be a few more twists and turns before we find out Chrysler’s fate.


Chrysler: The three most-rated raptors

April 9, 2007

286205351_a9245dd0a9.jpgWhen Chrysler-Daimler boss Dieter Zetsche said recently that all possibilities were under consideration for Chrysler, the vultures began to circle. Is it a simply a matter of time? We assess the three most rated raptors. [Update]

As the Easter celebrations began, so did the take-over rumors around the Chrysler division of Chrysler-Daimler. Tracinder, the investment vehicle for the influential corporate investor Kirk Kerkorian is reported to have made a $4.5 billion offer. Other names mentioned include the canadian engineering firm, Magna International, and the once all-powerful General Motors.

Update: I have no firm news to add to the post. However, I should have mentioned that as well as my identified three predators, there were reports of others. The Detroit News has suggested that Chrysler has opened its books to buyout specialists Cerberus Capital Management.

Original Post

In February, I blogged that Chrysler was in big trouble, and that CEO Dieter Zetsche of Chrysler-Daimler had indicated as much, in saying he would be exploring all options with new partners. He had left the door of the Chrysler hen-house open, with the foxes getting bolder by the day. Today I’ve changed metaphor in midstream. It’s not foxes eyeing carelessly-guarded chickens anymore, but vultures detecting some easy pickings.

Commentators had discounted the chances of takeover by non-American bids on various grounds. The product base was too dependent on gas-guzzlers with long-term declining prospects; the American market is notoriously hard for foreign firms to crack (although Toyota is among the ‘invaders’ who have found the successful formula: if it looks like a sheep, baas like a sheep, herds with the other sheep, perhaps it’s not a wolf in sheep’s clothing).

So attention turned to possible North American bids. GM had been mentioned, but had not been tempted by an earlier merger suggestions (by one investor, Kirk Kerkorian) to merge with Nissan and Renault.

Kirk Who?

Mr Kerkorian unsuccessfully opposed the original merger, generating a legal objection, claiming he had been unfairly disadvantaged to the tune of some $billion. He lost that appeal. Now he is back in action. His bid this week requires Chrysler to reach agreement with the United Autoworkers and make progress over unsettled pension and health costs.

Frank who?

Another firm mentioned as interested in acquiring Daimler is Magna. The firm is a relative newcomer, founded by an Austrian entrepreneur Frank Stronach. Mr Stronach emigrated to Canada in the 1950s, and built up a successful auto-business. One of its interesting features is its Governance structure. According to the company web-site,

In 1971 Mr. Stronach introduced his management philosophy, known as Fair Enterprise, to Magna. Fair Enterprise is based on a business Charter of Rights that predetermines the annual percentage of profits shared between employees, management, investors and society, and makes every employee a shareholder in Magna. These rights are enshrined in a governing Corporate Constitution.

And GM?

The old lady has not yet offered a convincing enough denial. The lack of a denial has been enough to induce a few trading jitters. When the news of Kirkorian’s bid came through, GM strengthened. One analyst suggested that the reduced possibility of GM becoming involved with Chrysler helped rally investors.

A three-horse race or a chess tournament?

The moves are taking place as Daimler-Chrysler shareholders met in Berlin for its annual meeting. There were strong representations to the company to get rid of the Chrysler operation.

Chief executive Dieter Zetsche admitted that the group has started negotiations with a number of parties about the sale of Chrysler and was reported by the BBC as saying

“I can confirm that we are talking with some of the potential partners who have shown a clear interest .. We need to keep all options open and I cannot disclose any details, because we need to have the maximum scope for manoeuvre”

If this were a chess tournament it would have the highest rating for the caliber of Grand masters taking part.. But unlike a chess tournament, we don’t even know the full list of competitors.


Chrysler Chills: Is this Thermal Denial?

February 18, 2007

Sunset
Ford and GM have shed nearly eighty thousand jobs. Chrysler now announces another 13,000 job cuts in North America. Chrysler/Daimler faces a tricky future as its head, Dieter Zetsche, weighs up all options for the ailing partnership. Against the growing reality of the job-cuts we ask: is there still thermal denial in the American auto-industry?

The overall story is now well-established. The mighty auto-industry in America is in a tailspin. There is a sense of the decline and fall of the Fordist Empire. Some of us learned that was caused by enemies within, as much as enemies from outside. Which translated points to the fiendish plot by Foreign-owned auto-companies to metamorphose into American companies.

Sales and sales projections say that big is not as beautiful as it was. It seems likely that the invaders such as Toyota can probably scale upwards in the new midi- or cross-over utility vehicle market more easily than the American auto-giants can scale down into the market.

Meanwhile at the Detroit Show

Meanwhile, the Detroit show recently indicated the approach to the market from the ailing giants. Chrysler could claim to have played a big part in creating the market for the rather large People Carriers. Tom LaSorda, head of the American Chrysler division of the partnership said as much at the show. He also indicated that the future product the company was backing was …The Grand Caravan, another people carrier.

In a sideshow, the Corporation’s chief economist was offering another interesting take on its thinking. Van Jolissaint described a gulf between views he found prevalent in Europe, and those in the States. He was dismissive of the Stern report and suggested that climate change was “way, way in the future, with a high degree of uncertainty”. He added for good measure that the Europeans appeared to be suffering from a quasi-hysterical condition producing Chicken Little behavior, running around saying the sky was falling in. The audience from within the auto-industry seemed to find both solace and confirmation of the correctness of its own views from his argument.

It may have escaped the notice of the audience that the Chrysler part of the partnership was performing particularly weakly, with strongest performance from the European Mercedes-Benz car and truck operations.

After the Show was over …

After the Show was over the auto-makers returned to their beleaguered manufacturing bases, and economists to wherever economists return to (Platonia? Milton Freedonia? Maynardsville?).

Then on Valentine’s day (of all days), Chrysler announces 13,000 job losses. The Chrysler Chief (sounds like part of a music group) is pressed about the future of the American side of the partnership. Dieter Zetsche, for it is he, indicated that he would be exploring all options with new partners.

But Mr Zetsche who used to run Chrysler, has also been engaged in a little denying. According to the BBC:
Mr Zetsche denies any plans to sell the company and pointed out that its problems could be temporary and cyclical .. “No one knows if there is a long-term shift in trends”

So what’s going on?

From a leadership perspective, who would wish to be in change of a global car operation at present? There are a very small number of names who are frequently mentioned as today’s super-leaders, and inheritors of the mantle of earlier greats. Am I right in thinking that the names are largely non-American? If so, is that not puzzling? And who will be in change of whatever is left of Chrysler a few years down the line? Probably not Mr. LaSorda, and that’s not at all because he bears an uncommon resemblance to another once powerful leader. I will leave that as a little challenge to anyone interested.

And why do I think the current crop of successful Auto-chiefs are not American? I hesitate even to offer the most tentative of hypotheses. I am still trying to work out why there are have been so few great English football managers, and such a statistical surfeit of Scottish ones. Or am I wrong about that as well?


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