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.


Follow

Get every new post delivered to your Inbox.

Join 1,602 other followers