Daimler's $650 Million Bar Tab

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There’s a lot of talk today about the sale of Chrysler to Cerberus (and Lindsay Campbell’s appearance on the Sopranos, and how Warren Buffett hates animals). Larry Ribstein sees the transaction as a paradigm of the private equity deal (the hound of Hades is putting up $7.4 b “in return for which it is demanding cooperation,” so that it can “clean up contracting problems that are threatening to send an otherwise viable business down the tubes). Rupert Murdoch’s Wall Street Journal notes that Cerberus could effectively cut costs by consolidating Chrysler Financial and GMAC (of which it has a 51% stake). The Journal also adds that Stephen Feinberg, the head of the three-headed dog, is not only a Princeton grad, not only a champion tennis player, not only a paratrooper, but an avid deer hunter (which is important, because men who like to kill animals tend to know what they’re doing, and deer are vastly overpopulated in New Jersey). Finally, the J answers the question that’s been weighing on everyone’s mind, “Did Cerberus have a website last year?” A. No.
The Times quotes Hans-Richard Schmitz, representative of the German Association for the Protection of Shareholders, who weighed in with some not at all breaking news and the go-to metaphor for the deal: “This marriage made in heaven turned out to be a complete failure.” The Gray Lady also has some charts.
Rupert’s other publication, the Post goes where no one else dares go, and reminds everyone that “Sun-drenched billionaire Kirk Kerkorian was shut out of the process despite a late $4.5 billion bid for Chrysler.” (Our emphasis).
But it’s Deal Journal that actually tells us something interesting: by “sale of $7.4 billion,” Daimler actually means “it’s going to cost us $650 million” to get rid its red-headed step-child.

As the release itself explains:
Cerberus is contributing $5 billion into the new company (this does not go to Daimler). And another $1.05 billion goes into the financial business (this, again, does not go to Daimler.) Daimler gets $1.35 billion (but will loan the new company $400 million.)
So Daimler makes about $1 billion then, right? Actually, no.
Like a politician obliquely saying “mistakes were made,” Daimler goes on to say that the restructuring “will give rise to a cash outflow” of $1.6 billion.
In sum, the net outflow will be about $650 million, plus another $878 million of “prepayment compensation”, Daimler says. And that’s how a $7.4 billion windfall actually turns into a bill.

We also like this little exercise in decoding deal-speak because it affirms what Carney said a few months ago about how the only way anyone would take on Chrysler is if they were being paid to do so: “When we called one of our banker friends to ask for a valuation on what GM might pay for Chrysler, he joked that GM might ask Daimler to pay them to take it off their hands.”
A $7.4 Billion Windfall for Daimler. Not! [Deal Journal]
Chrysler going to the dog [Ideoblog]
Buyout Firm Close to Winning Chrysler Bidding [WSJ]
Chrysler Group to Be Sold for $7.4 Billion [NYT]
CERBERUS BID HAS INSIDE TRACK WITH CHRYSLER [NYP]

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