Could Private Equity Groups Snare DaimlerChrysler?

Posted by: Gail Edmondson on February 23, 2007

While everyone is pondering who will buy Chrysler, some of the biggest players in the private equity industry are also running the numbers on a mega-bid for DaimlerChrysler. At least that’s the buzz in Frankfurt.

It may still be a long shot — but it could become a more viable scenario if the sale of Chrylser stalls. Already, the thrill of decoupling ailing Chrysler from Mercedes has sent Daimler’s share price soaring. If DaimlerChrysler Chief Executive Dieter Zetsche dawdles, preferring to fix Chrysler before a sale, the shares may sag as investors lose patience.

If Chrysler’s fortunes plummet further, the drag on Daimler’s share price could provoke a private equity feeding frenzy. Just imagine the discount on Daimler’s shares a year from now as Mercedes operating margin heads north of 8% and Chrysler remains in the red. If Daimler’s shares float back down to 30 Euros a share, the gains on breaking up DaimlerChrysler would be serious change — something like 45 billion Euros — or $59 billion. Even at 40 Euros a share, the difference between the market capitalization and the break up value analysts peg is $46 billion

My sources say Zetsche has 12-18 months maximum to cut a deal on Chrysler. After that, anything could happen. The world’s private equity kingpins have been pondering a bid for DaimlerChrylser for two years. Zetsche unleashed the genie from the bottle Feb. 14 in Auburn Hills when he conceded “all options are on the table” for the German company in dealing with the problems at Chrysler. Now there’s no turning back.

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