Discussions to sell Daimler's nominal 19.9% stake in Chrysler to Cerberus are going nowhere.
Daimler could face a bill for at least $1 billion for pension liabilities and other claims from key suppliers if Chrysler LLC is forced into bankruptcy. Executives from the German automaker told shareholders at the annual meeting that, not surprisingly, they favor a Fiat-Chrysler alliance that would forestall bankruptcy.
Pressed by dissident shareholders to explain the full extent of Daimler’s liabilities should Chrysler fail, chief financial officer Bodo Uebber, Daimler’s in-house expert on all things Chrysler, said that Daimler could face claims of $1 billion for unfunded pension liabilities attached to Chrysler. In addition, there are other potential claims from suppliers, but it’s premature to speculate about the impact that Chrysler’s wobbly finances might have on Daimler’s own balance sheet, Uebber said. “We can’t say what impact Chrysler will have on us this year,” he said.
Daimler chief executive officer Dieter Zetsche told shareholders, “Both the equity value and the two loans we granted to Chrysler in connection with the separation are valued at zero on our balance sheets.” Thus, Daimler dropped its valuation of Chrysler-related assets by 3.2 million euros or more than $4 billion.
Also a $1.5 billion loan, which went to Chrysler at the very last minute in the summer of 2007 after bank financing for the Chrysler deal began to collapse, has now been written down. “It was a loan to Chrysler not to Cerberus and we have made the decision that they might not pay them back. But we haven’t waived our rights (to make a claim for the money,) Uebber said.
“From an accounting perspective, this enabled us to markedly reduce our exposure to Chrysler-related risks,” chairman Dieter Zetsche said. “I, for one, wouldn’t like to contemplate what shape we’d be in during the current economic crisis if had implemented our efficiency-boosting programs and we were still merged with Chrysler,” Zetsche said.
However, both Zetsche and Uebber made it clear to inquisitive shareholders that discussions to sell its nominal 19.9% stake in Chrysler to Cerberus are going nowhere.
“We are still negotiating with Cerberus regarding the transfer of our remaining Chrysler shares. However, Cerberus demands are making it difficult to reach an agreement. We have analyzed these demands in detail and regard them as unacceptable,” Zetsche said.
Uebber also said that Daimler had hired outside consultants to evaluate Cerberus claims that the German automakers was less than candid about the challenges facing Chrysler. “We’ve done an in depth study of this and concluded that they don’t have any merit,” he said.
Last November, Cerberus warned that it was considering some kind of legal action against Daimler unless some of these issues could be resolved.
Zetsche said that Daimler has transferred to Chrysler the 22 sales companies that it had organized around the world and continued to operate on a temporary basis. The arrangement ended on March 31, Zetsche said.
“At the end of March, the U.S. government imposed a deadline by which Chrysler was required to present a viability for is future operations and Chrysler must finalize its plan by the end of this month,” Zetsche noted. “In addition, the negotiations with Fiat must also be concluded by this deadline.” Fiat has proposed taking a 35% to 55% stake in Chrysler in exchange for new technology. “We are essentially in favor of a Chrysler restructuring,” he added.
Zetsche also acknowledged in response to a question from a shareholder that he probably had to accept some of the responsibility for Chrysler’s problems. “Without any doubt Chrysler is in an extremely difficult position. “To the extent that I was involved, I will have to accept responsibility for that,” he said.