From:
http://www.theglobeandmail.com/servlet/story/RTGAM.20070411.wrchrysler11/BNStory/Business/home
Posted AT 1:00 AM EDT ON APRIL 11 2007
Onex, Magna eye bid for Chrysler
Schwartz, Stronach preparing all-Canadian offer for car maker
BOYD ERMAN AND GREG KEENAN
From Wednesday's Globe and Mail
Two of Canada's most aggressive and successful businessmen, Gerald Schwartz of
Onex Corp. and Frank Stronach of
Magna International Inc., are working on a joint bid for all of money-losing auto maker Chrysler, according to people familiar with the sale process.
The rationale behind a Magna-Onex partnership is that Magna could bring its expertise to operating auto factories, while Onex could use its financial finesse to run Chrysler's credit arm, the sources said.
Onex could also bring a labour-friendly private equity face to the table — many unionized workers made big gains in the company's recent purchase of an aerospace company — in a negotiation where making a deal with unions to cut costs will be key.
The price that Magna and Onex would pay is unclear, according to the sources, who requested that their names not be used, though there have been suggestions that seller
DaimlerChrysler AG wants to generate at least $8-billion (U.S.) from a sale. Any buyer would also have to find a way to deal with the massive pension and health liabilities that Chrysler will come with, estimated at more than $15-billion.
DaimlerChrysler put the unit up for sale amid shareholder discontent about the continuing losses since the $36-billion merger of Germany's Daimler and Detroit-based Chrysler in 1998.
Chrysler posted an operating loss of $1.5-billion last year after being sideswiped by a sudden and rapid rise in the price of gasoline, which sent sales of the company's pickup trucks and sport utility vehicles skidding.
The only offer that has been made public so far is a $4.5-billion cash offer from billionaire Kirk Kerkorian.
Investment bankers from JPMorgan Chase & Co. are running the sale process, and the sources said private equity firms Blackstone Group LP and Cerberus Capital Management LP are the other leading bidders.
Magna had also been rumoured to be working with a private equity partner, but the identity of the backer had not been revealed.
There had been speculation that Magna, one of the world's largest auto component makers, would not bid for the whole of Chrysler, but would rather aim for a partnership setup where the Canadian company would run plants and try to use its operational expertise to cut costs.
With Onex on side, a play for all of Chrysler becomes a possibility, the sources said. Onex has spent only about half of the $3.45-billion it raised in a private equity fund last year. Onex officials declined to comment on the possibility of a bid for Chrysler.
Magna could borrow as much as $7-billion to fund a bid, according to a recent report by Citigroup analyst Jon Rogers.
“Potential drivers for Magna's interest might include gaining more business from and solidifying its relationship with an important customer,” Mr. Rogers wrote.
Magna has refused to discuss its plans, other than via Mr. Stronach's public comments that Magna must get involved to protect its relationship with the auto maker, which generates about 15 per cent of Magna's annual revenue of $24.2-billion. Magna makes seats, trim parts, and suspension and engine components for virtually every Chrysler vehicle manufactured in North America, and actually builds cars for DaimlerChrysler at a plant in Austria.
A big hurdle will be making a deal with the auto maker's unions. The Canadian Auto Workers union and the United Auto Workers union have expressed their opposition to the sale of Chrysler.
They have also vocally criticized the prospect of a takeover of the company by private equity firms, because of concerns that a buyout firm will try to institute deep cost cuts.
CAW head Buzz Hargrove has met with Mr. Stronach to hear what the union leader called a “sketchy” outline of a Chrysler proposal.
In an interview yesterday, he reiterated that he prefers a sale to an industry player and he vowed to throw up obstacles to Mr. Kerkorian's bid.
“All I've done is send a message to folks that this is not going to be a cakewalk if people want to take our members' jobs,” Mr. Hargove said.
“He stands for everything that I'm opposed to,” Mr. Hargrove said of Mr. Kerkorian.
“He's made his money throwing a lot people out of work, made a lot of money for himself and a few executives at the expense of a lot of workers and their families over the years,” he added.
Onex, however, could point to the deal made with workers — many of whom belong to the UAW — at its Spirit AeroSystems unit.
Onex purchased Boeing Co.'s aircraft component plants in the U.S. Midwest, negotiated new labour agreements that cut the remaining workers in on gains in the value of the operation in return for wage and job reductions, then took the new company public as Spirit. Workers made out much better than anyone forecast — the average gain was expected to be about $30,000, but when shares in the IPO sold at a higher price than planned each worker ended up in line for about twice that much.
Mr. Hargrove and Mr. Schwartz also have a history of co-operation. In 1999, Mr. Hargrove backed Mr. Schwartz's failed bid to merge Air Canada and Canadian Airlines International Ltd.
Onex is no stranger to the auto parts business, either.
The firm had stakes during the 1990s in Automotive Industries Holding Inc. and Tower Automotive Inc. But Onex has at times run into trouble in the auto industry.
The company purchased J.L. French Automotive Castings in 1999, and invested $226-million (Canadian) in the company before it filed for bankruptcy protection during the downturn in the auto business.
Faceoff
A joint bid by Gerald Schwartz's Onex and Frank Stronach's Magna would pit two Canadian magnates against Tracinda Corp., led by Kirk Kerkorian, a billionaire investor from Beverly Hills. He has tabled a $4.5-billion (U.S.) bid for Chrysler. Also in the running are U.S. funds Blackstone Group and Cerberus Capital.
Kirk Kerkorian is a former pilot and amateur boxer who made his fortune building resorts in Las Vegas. He once held as much as 13 per cent of Chrysler Corp., before it was bought by Daimler for $38-billion (U.S.) in 1998. Last year, he owned as much as 10 per cent of General Motors.
Founded by Frank Stronach, Magna International makes car parts in Canada, Europe, Mexico, the United States and Britain.
Founded by Gerald Schwartz, Onex's subsidiaries make parts for planes and computers. They also build business jets and run health care facilities.
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