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Daimler rids itself of stake in Chrysler

German automaker Daimler AG says it has reached a deal to get rid of its 19.9 percent stake in Chrysler LLC.
/ Source: The Associated Press

Germany's Daimler AG said Monday it has reached a deal to get rid of its remaining 19.9 percent stake in Chrysler LLC, severing the last tie between the two automakers that was formed more than a decade ago.

The agreement is expected to stanch the billions in losses Daimler has sustained as a result of its stake in the struggling U.S. automaker, which itself faces a Thursday deadline to restructure or face possible collapse.

"Following the transfer of the term sheet into the final definitive agreements, the relationship between Daimler and Chrysler will solely consist of supplier-customer relations, including limited support for certain dealer financing until the end of September 2009, as well as certain guaranties," Daimler said in its statement.

Under the agreement, Daimler will forgive $1.9 billion in loans it extended to Auburn Hills, Michigan-based Chrysler, which it had already written off in its 2008 financial results.

Daimler also agreed to pay $200 million into Chrysler's pension plan when the deal takes effect and in each of the two years afterward. The money will help fund the pensions of former DaimlerChrysler AG workers, Daimler said.

The existing pension guaranty of $1 billion in relation to the Pension Benefit Guaranty Corp., the government corporation that insures the pensions of millions of workers and retirees, will be reduced to $200 million and remain in place through August 2012.

Daimler said the deal is expected to reduce its second-quarter earnings before interest and tax by about $700 million. The automaker has recorded billions in losses related to Chrysler since selling off most of its stake in the U.S. carmaker to New York-based private equity firm Cerberus Capital Management LP in 2007.

For the fourth quarter of 2008 alone, Daimler said its Chrysler stake pulled its results lower by some 2 billion euros. The German company reported a 1.53 billion euro loss for the quarter. Daimler is scheduled to release its first-quarter earnings on Tuesday.

Cerberus' acquisition of 80.1 percent of Chrysler in 2007 dissolved a stormy "merger of equals" made in 1998 between Daimler-Benz and Chrysler Corp. But in November 2008, Cerberus accused Daimler of intentionally misleading it before it sold the controlling stake to the private equity firm the year before in a $7.4 billion deal.

As part of Monday's deal, Chrysler and Cerberus agreed to waive any claims, including that one, stemming from the 2007 sale, Daimler said.

Meanwhile, Chrysler has been living on $4 billion in government loans and may get another $500 million to keep it alive through Thursday's deadline to restructure. It has negotiated steep concessions with the United Auto Workers and Canadian Auto Workers unions, but if it can't close final deals with bondholders and Italy's Fiat, no more government money will be made available and the company almost certainly would be sold off in pieces under bankruptcy court supervision.