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Daimler finally divorces Chrysler

Divorce of equals: The Daimler split with Chrysler is all over bar the shouting.

German car-maker pays heavily to rid itself of remaining Chrysler connection

Chrysler logo28 Apr 2009

DAIMLER AG has finally decided to eliminate all traces of its costly 11-year dalliance with Chrysler Corp, agreeing on Monday to unload its remaining 19.9 per cent stake in the ailing US automaker.

The German powerhouse will pay dearly to escape what former company chief Juergen Schrempp famously described as “a merger of equals” and “a match made in heaven” back in 1998.

DaimlerChrysler ceased to exist and became Chrysler LLC in 2007 when Daimler sold an 80.1 per cent stake to investment company Cerberus Capital Management, a transaction that subsequently became the subject of bad blood and legal threats.

However, this week’s agreement, after six months of talks between the feuding partners, sees Daimler’s remaining 19.9 per cent transferred to Cerberus.

The deal paves the way for a partnership between Fiat and Chrysler that the US government regards as necessary before underwriting the US company’s survival plan, which is due to be delivered on Thursday (April 30).

Walking away from Chrysler will cost Daimler dearly, even though it officially valued its remaining shares at zero.

 center imageLeft: Former Daimler chief Juergen Schrempp.

It has agreed to forgive repayment of $US700 million ($A990 million) in loans made to Chrysler and will also have to pay a total of $US600m ($A849 million) over the next three years into Chrysler’s pension plans.

“Daimler’s remaining 19.9 per cent shareholding in Chrysler will be redeemed and Daimler will forgive repayment of the loans extended to Chrysler, which were already written off in the 2008 financial statements,” said Daimler in a statement.

“In addition, Daimler has agreed to pay $US200 million into Chrysler’s pension plans on the date of the execution of definitive agreements and in each of the next two years. In this way, Daimler is helping to secure pension payments to former employees of DaimlerChrysler.” Daimler also said that Chrysler and Cerberus had agreed to waive any claims against Daimler as well as accusations that Daimler had “improperly managed certain issues” after signing the 2007 agreement, including “the accusation that incomplete information was provided on the transaction”.

Daimler said the relationship with Chrysler will in future “solely consist of supplier-customer relations, including limited support for certain dealer financing until the end of September 2009, as well as certain guaranties”.

The Chrysler episode echoes Daimler’s experience with Mitsubishi Motors, in which Daimler held a controlling interest from 2000 to 2005 before also walking away at great cost.

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