And there's more trouble in the mix. Cerberus said in a New York Times story that Chrysler is meeting "every financial metric." But Cerberus considers the world's current economic turmoil to be a temporary problem, not the economic world change that it actually is. Meanwhile, Chrysler CEO Bob Nardelli is smiling because Cerberus has given Chrysler lots of money, and he gets to cut heads.

Continue reading Can Nardelli and Cerberus possibly make money with Chrysler?

Can Nardelli and Cerberus possibly make money with Chrysler? originally appeared on BloggingStocks on Wed, 27 Aug 2008 14:20:00 EST. Please see our terms for use of feeds.

Back in 1992, Steve Feinberg started a small private equity firm, Cerberus Capital Management LP. It was actually a tough time in the markets. But not for Cerberus. After all, it focused on distressed deals.

Now, the firm is putting together a fund to focus on distressed opportunities in foreign markets (this according to Reuters). After all, the credit crunch is a global crisis -- as seen in places like the UK and even Asia.

In fact, the new Cerberus fund will look mostly at financial services companies, which need lots of capital.

All in all, it's a smart move -- and should produce nice returns. Moreover, Cerberus has strong leadership to pull things off. For example, the chairman of the firm is John Snow, who is the former Treasury Secretary and has a golden Rolodex.

It also looks like Cerberus may raise capital from sovereign wealth funds. Keep in mind that TPG recently snagged $2.5 billion from China for its new fund.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates MergerBook.com.

Cerberus goes back to its roots originally appeared on BloggingStocks on Sat, 14 Jun 2008 16:40:00 EST. Please see our terms for use of feeds.

So what do you do if your company produces mostly heavy, inefficient vehicles as gas soars past $4 a gallon? Some might say you should produce more efficient cars. But not Chrysler, which has instead opted to make gas cheaper, guaranteed!

Today, Chrysler CEO Bob Nardelli announced that anyone crazy enough to buy a heavy, high-horsepower, low-mileage Chrysler product before May 31 will be able to buy gas for no more than $2.99 a gallon for three years. Just take your shiny new Aspen or PT Cruiser to the gas station and use your special gas card; Chrysler will pick up the cost over $2.99 a gallon.

Some critics are calling this plan a cheap gimmick. But there is no denying that Chrysler is at a disadvantage relative to General Motors (NYSE: GM) and Ford (NYSE: F) when it comes to offering new cars that get decent mileage. And it is light years behind the auto design leaders, Toyota (NYSE: TM) and Honda (NYSE: HMC). So it needs some kind of gimmick to help its dealers clear out the cobwebs that are quickly forming on their lots.

In recent years, Chrysler has relied heavily on trucks and SUVs for sales, and its hot new cars like the Challenger are gas guzzlers. (Hey, your Hemi sure is fast! Sorry about the 11mpg!) Its lineup is in desperate need of an overhaul and products that offer decent mileage. But developing new cars is difficult and very expensive, and it's not clear that Chrysler's owner, Cerberus Capital Management, has the money to do it. The alternative -- advertising and sales gimmicks, long favorites in Detroit -- is cheap by comparison.

This promotion might work, at least for a few weeks. But it points to much larger problem: Chrysler doesn't have the goods to compete right now, and it's not clear when it will, if ever.

Chrysler's desperation move: $2.99 gas for your shiny new SUV originally appeared on BloggingStocks on Tue, 06 May 2008 14:45:00 EST. Please see our terms for use of feeds.

United Rentals (NYSE: URI) recently down $3.72 to $17.85:

WSJ said that the court found against URI in the Cerberus case. URI was suing Cerberus Capital Management for walking away from a $6.6 billion buyout of URI. URI January option implied volatility of 130 was above its 26-week average of 33 according to Track Data, indicating larger movement.

Options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

Options update: Court finds for Cerberus, United Rentals down 15% originally appeared on BloggingStocks on Fri, 21 Dec 2007 16:21:00 EST. Please see our terms for use of feeds.

United Rentals Inc. (NYSE: URI) confirmed that the trial in its lawsuit against Cerberus Capital Management for walking away from a $4 billion buyout of URI has been postponed for a day to allow the parties to continue with settlement talks. URI over all option implied volatility of 86 is above its 26-week average of 30 according to Track Data, indicating larger movement.

Options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

Options update: United Rentals volatility up into Cerberus settlement talks originally appeared on BloggingStocks on Mon, 17 Dec 2007 11:02:00 EST. Please see our terms for use of feeds.

Shareholders at United Rentals (NYSE: URI) have a right to be mad. Hedge fund Cerberus Capital Management offered to buy the company. Shares rose from about $27 to over $34.

Then Cerberus walked. United Rental stock fell to $20.76 and has not recovered much. The entire matter headed to court. The legal battle was to begin today in Delaware Chancery Court. That has been delayed while the two sides talk.

Cerberus said that it was within its right to break off the contract. According to The Wall Street Journal, "the delay could help United's flagging stock price, as well as clear up some of the negative public perception of Cerberus, a Wall Street buyout shop that provided little detail for why it walked away from its agreement."

In other words, it may have been in the financial interests of Cerberus to walk out, but its may be a shaky legal ground.

Private equity firms have broken a number of these buyouts now, and, in some cases, contracts allowed them to do so. The court system is likely to catch up to them at some point soon. If settlement talks with United do not work out, it may be in this case.

Just one announcement that an LBO shop has had to pay hundreds of millions in damages would send a real shudder through the industry.

Douglas A. McIntyre is an editor at 247wallst.com.

United Rentals and Cerberus try to settle originally appeared on BloggingStocks on Mon, 17 Dec 2007 10:20:00 EST. Please see our terms for use of feeds.

Yesterday, United Rentals Inc. (NYSE: URI) published an ominous press release saying that its private equity sponsor, Cerberus Capital Management, "is not prepared to proceed with" the $7 billion transaction. Of course, with the uncertainty in lending markets, this should not necessarily be a surprise. Nonetheless, the shares of United Rentals plunged 30%.

United Rentals is the largest equipment rental company in the US. Annual revenues are about $3.7 billion and EBITDA is about $1.1 billion (which is always something private equity folks like to see).

If you take a look at the merger agreement, the break-up fee is $100 million. That's a pittance for Cerberus. In other words, if the cost of financing has spiked -- making a deal much more expensive -- why not just pay the $100 million? But the question is: may United Rentals have a case for requiring the deal to get done? Well, that's where things get fuzzy. I'm really not sure.

That's a good question for attorneys. And, yes, United Rentals has retained Orans, Elsen & Lupert LLP. So we may see showdown in the Delaware courts. If you want to see a great analysis of the legal argument, you can check out the M & A Law Prof Blog.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements.

Cerberus deal for United Rentals falls apart originally appeared on BloggingStocks on Thu, 15 Nov 2007 14:39:00 EST. Please see our terms for use of feeds.

FLASH: UAW strike at Chrysler originally appeared on BloggingStocks on Wed, 10 Oct 2007 11:25:00 EST. Please see our terms for use of feeds.

Chrysler snags key Toyota (TM) exec originally appeared on BloggingStocks on Thu, 06 Sep 2007 14:20:00 EST. Please see our terms for use of feeds.

Cerberus assumed 80% ownership of Chrysler from DaimlerChrysler (NYSE: DAI) on August 3. Cerberus is now engaged in contract talks with the United Auto Workers as it looks for ways to cut costs. The union is reportedly opposed to the sales for fear of job losses; the units employ roughly 1,300 unionized workers. Chrysler's four-year contract with the UAW expires on September 14.

Analysts are saying that the sale of the units would allow Cerberus to focus on Chrysler's core business of making cars and trucks, and help raise much-needed cash. But Mopar is hardly a peripheral unit. Chrysler has been using the term to refer to its parts since the 1920s, and Mopar has long been virtually synonymous with the automaker. This is especially true when it comes to high performance cars, including the famous muscle cars of the 1960s and 1970s -- the Barracuda, the Super Bee, the Road Runner -- that Chrysler is trying to revive. So you have to wonder if this is a good move in the long run. Let's hope that Chrysler doesn't lose what makes it unique and desirable to car lovers as it works to return to profitability.

Cerberus may sell Chrysler's Mopar originally appeared on BloggingStocks on Wed, 29 Aug 2007 11:15:00 EST. Please see our terms for use of feeds.

In Monday morning news that had me scratching my groggy head, BusinessWeek reports that fired Home Depot Inc. (NYSE: HD) CEO -- and General Electric Co. (NYSE: GE) alum -- Bob Nardelli is in charge of fixing Chrysler. If someone can explain to me why this makes sense, I would like to hear it.

That's because during his tenure as CEO, Nardelli systematically destroyed Home Depot's greatest strengths -- its expert sales staff and ability to supply products that customers needed in the stores. Moreover, he has no experience in the automobile industry, which depends heavily for its success on developing cars that consumers want to buy at a price they can afford.

Nardelli is not the first manager from outside the auto industry to be parachuted in to save the day. Consider Alan Mullaly, who was passed over for CEO of Boeing Company (NYSE: BA) for another GE alum, James McNerney. Mullaly took over at Ford Motor Co. (NYSE: F) in September 2006.

Continue reading Why did Cerberus ask fired Home Depot (HD) CEO Bob Nardelli to run Chrysler?

Why did Cerberus ask fired Home Depot (HD) CEO Bob Nardelli to run Chrysler? originally appeared on BloggingStocks on Mon, 06 Aug 2007 11:52:00 EST. Please see our terms for use of feeds.

Cerberus Capital has made a huge mistake in hiring disgraced former Home Depot Inc. (NYSE: HD) CEO Robert Nardelli to run Chrysler LLC. which it officially acquired Friday for $7.3 billion.

For one thing, he has no experience in the auto industry. Moreover, he was a horrible CEO at Home Depot, whose arrogance was matched by a lack of operational skills. The Atlanta-based retailer is in the process of selling off its HD Supply Division, which Nardelli built, to a private equity group lead by Bain Capital for $10.3 billion. Home Depot also lost market share to Lowes Cos. (NYSE: LOW) and saw its stock price fall about 8% under Nardelli's leadership.

The reasons and justifications for the appointment make no sense. The New York Times reported that Nardelli was hired for his "turnaround expertise" and won't be paid if the automaker "does not improve." I'm not quite sure what that means.

Nardelli was highly regarded when he worked for General Electric Co. (NYSE: GE) and was one of the candidates to succeed Jack Welch when he retired. That reputation got him the job at Home Depot, where he earned an outrageous compensation package and the ire of shareholders. Maybe Cerberus thinks that Nardelli can bring the GE touch to Chrysler.

Unlike Home Depot, the workforce at Chrysler is unionized. Nardelli better keep his considerable ego in check during the current round of contract negotiations, otherwise he's going to have huge problems. Though considerably weakened, the UAW will probably be as ornery to deal with as any Wall Street investor.

Nardelli has got an incentive to keep his ego in check. If he can turn Chrysler around, he may get an ownership stake in the company that will make him far wealthier than he is today. Of course, he'll still be plenty rich if he fails too.

That's one of the perks of being a failed CEO.

Continue reading Bob Nardelli is the wrong guy for Chrysler

Bob Nardelli is the wrong guy for Chrysler originally appeared on BloggingStocks on Mon, 06 Aug 2007 07:30:00 EST. Please see our terms for use of feeds.

Two big private equity deals are having trouble getting banks to lend them money. This trouble reveals the essential function of private equity firms -- the ability to convince banks that the fees they'll get for financing deals exceed the risk of loss if the borrowers can't pay back the money. In the past, the banks would sell portions of the loan to other banks and investors to limit their risk. But the appetite for those investments is disappearing.

Cerberus Capital Management and Kohlberg Kravis Roberts & Co. are both suffering this morning. The New York Times [registration] reports that Cerberus is not able to raise the $5 billion in debt it needs to finance its takeover of Chrysler. The snag is a result of investor unwillingness to accept the terms for $12 billion in loans and "does not jeopardize the deal."

Perhaps the deal is not in trouble, but if it does go through, the terms might make it less profitable for Cerberus. For now, the five banks, led by JP Morgan Chase & Co. (NYSE: JPM), plan to take on about $10 billion of the debt and try to sell it later -- Chrysler and Cerberus will carry the other $2 billion.

Continue reading Is private equity in trouble?

Is private equity in trouble? originally appeared on BloggingStocks on Thu, 26 Jul 2007 11:28:00 EST. Please see our terms for use of feeds.

Chrysler sales may climb due to Cerberus deal originally appeared on BloggingStocks on Thu, 24 May 2007 10:43:00 EST. Please see our terms for use of feeds.

Daimler is paying Cerberus to take Chrysler originally appeared on BloggingStocks on Tue, 15 May 2007 10:19:00 EST. Please see our terms for use of feeds.

Back in 1988, Darwin Deason founded Affiliated Computer Services, Inc. (NYSE: ACS) to help build computer and software systems for major clients. It's turned out to be a successful business as the company generated $5.3 billion revenues last year. A big focus is on processing bank transactions and healthcare claims.

Now, Deason is taking ACS private in a $8.2 billion deal. The private equity buyer is Cerberus Capital Management.

Like many techs, ACS suffered from a stock options investigation. It was a managerial distraction (the CEO departed) and expensive.

So it's understandable why Deason wants to leave the public markets.

What's more, Deason will roll-over his major position in ACS stock in the deal. He certainly sees long-term potential here. And with voting control, he can basically call the shots.

However, he may have to bump the $59.25 offer up a bit. The current stock price is $60.10.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The EDGAR-Online Guide to Decoding Financial Statements.

ACS wants out for $8.2 billion originally appeared on BloggingStocks on Tue, 20 Mar 2007 13:09:00 EST. Please see our terms for use of feeds.

If a private equity firm is serious about bidding for Chrysler, it might as well get an expert to look over its shoulder, especially if that expert could run the company after the takeover.

Cerberus Capital Management, one of the private equity firms considering buying the US car unit from DaimlerChrysler (NYSE:DCX) has retained Wolfgang Bernhard [subscription] who previously worked at both Chrysler and VW.

Cerberus is already up to its eyeballs in the car industry. It bought a portion of GMAC from GM (NYSE:GM) last year and is trying to get a piece of the action at Delphi, the bankrupt car parts company that is working its way out of Chapter 11.

Hiring a senior car executive still begs the question of how a private equity firm can get more profit out of Chrysler. Wall Street assumes that Daimler did what it could to cut costs at it US arm. Another car company may be able to consolidate some functions if it bought Chrysler. But private equity firms seem to bring nothing to the table other than money.

There is another answer to the riddle of why private equity firms are all over Chrysler's books. They may assume that a purchase of the car company could immediately lead to breaking it into pieces. Jeep could probably be sold to another car company as could Chrysler's pick-up truck operations. That would leave the car brands, and they might not survive, at least at their current size.

Perhaps there is some "creative destruction" in Chrysler's future.

Douglas A. McIntyre is a partner at 24/7 Wall St.

Private equity firm's auto exec eyeballs Chrysler originally appeared on BloggingStocks on Wed, 14 Mar 2007 10:55:00 EST. Please see our terms for use of feeds.

Cerberus Capital Management, a top private equity firm, recently hired John Snow, who was the former US Treasury Secretary. No doubt, while in office, he had a chance to deal with complex global issues - especially what's happening in China.

So, this week, Cerberus is setting-up an office in Hong Kong. This is according to a report from Bloomberg.com.

Snow also made some interesting comments, which sounded as if he was still working for the White House. His key message was that China needs to open its markets. In fact, he thinks this is absolutely critical since the country needs to create 25 million jobs a year.

And, yes, this means being friendly with private equity.

Snow will likely need to spend a lot of time in China to get things done. After all, last year, the country imposed even more restrictions on takeovers.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.

Private equity gets political in China originally appeared on BloggingStocks on Wed, 14 Feb 2007 13:57:00 EST. Please see our terms for use of feeds.

Blackstone's $36 billion purchase of Equity Office Properties Trust (NYSE: EOP) looked like a done deal (except for some hick-ups with the bond investors).

Well, according to recent news reports, another group wants in. The players include Barry Sternlicht (Starwood Capital Group Global LLC), Neil Bluhm (Walton Street Capital) and Cerberus Capital Management.

Such battles are rare in the private equity world. There is an unwritten code that once a private equity deal is announced, it may not be topped. But when the stakes are high, rules have a tendency to be ignored. In other words, this year may be the time when private equity gets a little more hostile.

Obviously, this is good news for EOP shareholders, as the stock price is now at $49.49, which is above Blackstone's offer of $48.50.

Why all the interest? The outlook for commercial real estate looks particularly bright for the foreseeable future, especially for Class A properties. And given the stiff regulations, it takes time to build new capacity. So the betting is that rents will increase.

True, if EOP takes another offer, there will be a termination fee of $200 million. But given the size of the transaction, this is probably not relevant.

Blackstone has matching rights on any bid. That is, it can make a small increase to its purchase price to snag the deal -- which, interestingly enough, could limit the valuation on EOP.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.

Barbarians at the gates of Equity Office Properties originally appeared on BloggingStocks on Thu, 11 Jan 2007 11:43:00 EST. Please see our terms for use of feeds.

In light of the global competition and difficulties of the U.S. automakers and unions, who would want a piece of the auto parts market? Well, private equity investors of course, as well as hedge funds see opportunity in this market.

Actually, the U.S. bankruptcy system may be the ally, as it can help wipe-away the legacy problems. After all, this has happened in the airline and steel industries, right?

Well, things are heating-up for the auto parts companies. In fact, Delphi Corp. is in the midst of a bidding war (the company is currently under Chapter 11 bankruptcy).

There was a $3.4 billion deal for the company with private equity investors like Appaloosa Management and Cerberus Capital Management.

Well, this week, a hedge fund jumped into the fray. Highland Capital is offering $4.7 billion. What's more, Highland does have some leverage since it is the second largest shareholder of Delphi (owning close to 9% of the company). It also has ownership in a slug of Delphi's debt.

It's certainly a bold move. By all accounts, it looks like the U.S. automakers will slash production in 2007 - which will put further pressure on the parts companies.

Although, Highland may be doing this more for negotiation purposes. That is, it is trying to get more from Cerberus-Appaloosa.

Tom Taulli is the author of various books, including the Complete M&A Handbook and operates DealProfiles.com.

Bankruptcy crashers -- A competing plan for Delphi originally appeared on BloggingStocks on Thu, 21 Dec 2006 14:08:00 EST. Please see our terms for use of feeds.