IT'S EVEN WORSE FOR DAIMLER THAN I THOUGHT

5/15/07

FULL DISCLOSURE: I AM LONG DCX JANUARY 80 AND 85 PUTS AND AM AMENABLE TO ADDING TO MY DCX PUT POSITION.

In yesterday’s comments on the Cerberus deal, I listed as a possible counter to my negative view of DCX the possible perception of Daimler’s getting $7.4 billion for a worthless asset as a huge positive. I offered a few counterarguments to this counterargument, if you will, but information came out subsequent to my comments that cast an even more negative light on DCX in the wake of this deal.

Yes, Cerberus is paying $7.4 billion for Chrysler, but of that $7.4 billion….

$6.05 billion will be contributed to Chrysler
$5.0b to the industrial operations
$1.05 b to Chrysler Financial, which will probably be combined with GMAC
$1.35 billion will go to Daimler.

So Daimler is only getting $1.35 billion for Chrysler. However, it gets worse. Daimler is contributing:

$1.6 billion to subsidize negative cash flow and PORB liabilities at Chrysler
$400 mm in the form of a loan to the new company for the same purposes.

So Daimler is netting a negative $650mm for Chrysler, effectively paying Cerberus to take part of the $19 billion in Chrysler PORB debt off its hands. As has been repeated ad nauseam in the press, Daimler paid $36 billion for Chrysler in 1998. I wonder if Kirk Kerkorian’s anger at his getting paid too little for his Chrysler stake in 1998 has abated somewhat, but I digress.

Cerberus also plans to raise $65b to refinance Chrysler’s debt, most of which is on the books of Chrysler Financial. So, with this financing, and the financing needed to do the deal in the first place, one could also list as potential negatives for Daimler the possibility that the deal doesn’t get done, but there is almost nothing that doesn’t get done in today’s junk bond market.

Overall, this new information makes the deal slightly more attractive for the new Chrysler, somewhat akin to telling a cancer ridden patient that, good news, life support will keep him alive for one more week of agonizing pain. The new information, though, makes the deal even less attractive for DCX.