Cerberus wants its money back on Chrysler deal with Daimler

By Sharon Silke Carty, USA TODAY
In a dramatic case of corporate buyer's remorse, private-equity firm Cerberus Capital Management is demanding a refund on its purchase of Detroit automaker Chrysler a year ago from German car company Daimler.
Cerberus says it based its purchase on misleading information from Daimler.

"The claim is baseless and absurd," Daimler spokesman Han Tjan says. "Absolutely incorrect and completely without substance."

The investment company said in a statement Wednesday that Daimler "intentionally and materially" misrepresented matters involving auto loans and leasing contracts during the period before Cerberus' purchase of 80.1% of Chrysler in 2007. As a result, Cerberus said, Chrysler suffered losses "well in excess of" what it should have and what its competitors did.

Tjan says, "You can imagine in a deal like this, you don't sit around a table and do it. They had their bankers, their advisers, their auditors doing the full due diligence."

The wrangle comes at a tender moment in U.S. auto history. General Motors, Ford Motor and Chrysler are nearly broke. They return to Washington next week to ask for federal money, this time providing Congress more details on how they'd use it to revitalize themselves. Shares of GM and Ford jumped Wednesday on expectations they'll get a bailout.

Depending on how you look at the numbers, it can be argued that Cerberus paid nothing for Chrysler. Cerberus spent $7.4 billion to take control of Chrysler, but much of it went back into Chrysler, not to Daimler. Plus, Daimler pumped $700 million into the pension fund, took some health care obligations, paid closing costs and ended up about $650 million in the hole once the deal closed.

Now, Cerberus is demanding more than $7.2 billion because of the problems it sees associated with Chrysler. The private-equity firm also is quibbling over tax issues in Canada and wants Daimler to continue running Chrysler franchises outside North America.

The dispute has snagged talks over Cerberus acquiring Daimler's remaining 19.9% Chrysler stake. A Daimler statement blamed "exaggerated demands" by Cerberus.

Chrysler lost $1.6 billion last year and about $1.3 billion the first half this year. Daimler has written down the value of its 19.9% stake in Chrysler to zero.

Contributing: The Associated Press