Could we be on the verge of a significant shake-up in the global auto industry?
German car giant, Daimler has sold 80 per cent of its poorly performing Chrysler subsidiary to the Cerberus private equity buyout group for $US7.4 billion ($A8.9 billion).
But in more astonishing news, there are reports from the US on Bloomberg and in several newspapers that the Ford family is actively canvassing the possibility that its control over the stuttering car giant could be about to change.
The reports say sections of the Ford family have been discussing the possible sale of part of their controlling stake in the loss-making automaker.
If this was to happen then could Ford be the target of a buyout approach from a group of private equity funds much in the way control at Chrysler is about to change?
Ford arguably has a far better brand name and reputation than Chrysler.
While more expensive, Ford has more assets in the US and around the world (Ford Australia for instance) than Chrysler.
The prospect of the family pulling back from Ford would whet the ambitions of buyout and hedge funds around the world.
Chrysler’s sale will provide a rough guide, although for Daimler it’s going to end a very expensive lesson, and one that all those buyout funds looking at Ford, should pause to consider.
Although the German car giant will keep a 20 per cent stake in its former subsidiary and shift around $US10 billion in health care liabilities off its balance sheet, there’s no way it can ever hope to recover the original $US35 billion cost and subsequent losses and opportunity costs.
The Chrysler sale to Cerberrus means one of the biggest names in US business has fallen into the hands of the rapidly growing private equity fund industry.
According to the reports on Bloomberg and other US media; Ford Chairman Bill Ford briefed the company’s board of directors on family members’ views before the annual shareholders meeting last week.
Bloomberg said that at a gathering last month, some family members urged that investment bank Perella Weinberg Partners be hired to advise on a share sale or alternative strategies.
That has some echoes of the split emerging in the Bancroft family about the $US6 billion bid from Rupert Murdoch for the Dow Jones company.
The suggestions of a sale by some Ford family members was reportedly rejected after the family voted against it, but according to Bloomberg, that was not before a split emerged between the younger and older family members.
Ford is the Number two US carmaker but it lost $US12.6 billion last year. The shares have lost 74 per cent in value over the past eight years.
The family owns 71 million Class B shares, extending the power it has held since Henry Ford founded the company in 1903.
The value of the shares has plummeted to $US584 million from $US2.3 billion since Bill Ford, great-grandson of the founder, became chairman eight years ago. The automaker eliminated dividends in September so the family gets no income.
There were disagreements among family members reported almost a year ago about whether Bill Ford remain CEO. Last September, Ford hired Alan Mulally, head of Boeing’s commercial-jet business, to succeed Bill Ford as chief executive.
There was solid but unsuccessful support at last week’s annual meeting for a proposal to eliminate the B class shares and only have one class of Ford shares.
Daimler triggered the Chrysler sale process when reporting a $US1.5 billion loss for 2006 (since restated as a $US680 million). Ford had that $US12.6 billion loss and General Motors lost $US1.98 billion.
Last year Cerberus led a group of investors that bought a 51 per cent stake in finance company GMAC from parent GM. Since then GMAC has had to put aside $US1 billion at least to cover losses in a subsidiary that made loans to subprime housing borrowers. It will get $US76 billion in finance receivables to go with GMAC, a significant bonus.
Cerberus was also part of a group that offered to invest $US3.4 billion in bankrupt auto-parts maker Delphi Corp, a former subsidiary of GM. That deal is going nowhere with Delphi saying it expects Cerberus to pull out from the deal.
