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Old 03-03-2007, 01:04 PM   #1
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Default Wall St. king (BlackStone Group) in hunt for Chrysler

Wall St. king (BlackStone Group) in hunt for Chrysler


Wall St. king in hunt for Chrysler

Blackstone, with $125B war chest and auto know-how, is a leading buyout contender

The hottest buyout firm on Wall Street is seriously eyeing an acquisition of the Chrysler Group.

Blackstone Group, a private-equity giant with stakes in more than 100 companies, has emerged as a leading contender to buy the troubled U.S. division of German automaker DaimlerChrysler AG, people familiar with the situation told The Detroit News.

Blackstone, led by high-flying Chairman Stephen Schwarzman, is among a handful of corporate suitors that has been given access to confidential business data about Chrysler, which was put up for sale last month.

Other possible buyers include Cerberus Capital Management, which is also trying to acquire bankrupt Delphi Corp., and General Motors Corp., which has been in talks with DaimlerChrysler about a potential Chrysler deal since December.

Additional private-equity firms also could enter the fray in what is shaping up as a heavyweight contest for control of Chrysler, the one-time No. 3 automaker in the U.S.

But it's Blackstone -- armed with a $125 billion corporate war chest -- that for now casts the biggest shadow over Chrysler.

The New York-based firm has experience in the auto industry as the majority owner of TRW Automotive Holdings and formerly as a key investor in American Axle and Manufacturing.

The driving force behind Blackstone is Schwarzman, the preeminent dealmaker of the moment who was dubbed the "King of Wall Street" on the cover of the current issue of Fortune magazine.

"They have a serious level of credibility in the buyout world," said Joseph Phillippi, an automotive consultant and former Wall Street analyst. "They're a big player with lots of money and a track record in automotive."

Calls to Blackstone's Manhattan offices were not returned Friday. But people familiar with the Chrysler sale process said Blackstone is moving forward with a detailed analysis of Chrysler's finances and operations with an eye toward making a formal bid.

A Chrysler spokesman declined comment Friday on Blackstone or the existence of other potential bidders.

Details of the process have been closely guarded since Feb. 14, when DaimlerChrysler Chief Executive Dieter Zetsche stunned the automotive world by announcing that "all options" were being looked at for Chrysler.

Stockholders push sale

German shareholders of DaimlerChrysler had been pushing hard for a Chrysler sale since the U.S. unit posted a $1.5 billion loss in the third quarter of last year.

With Chrysler sinking under the weight of unsold inventories and slowing sales, Zetsche came under intense pressure to unwind the historic 1998 merger of Daimler-Benz AG and Chrysler Corp.

Since DaimlerChrysler hired the investment banker J.P. Morgan Chase to handle the potential sale of Chrysler, a number of private-equity firms have informally expressed interest.

But the process intensified this past week when Blackstone and Cerberus started gaining access to confidential data on Chrysler's assets, liabilities, product plans and sales projections.

People close to the situation said Blackstone and Cerberus could be joined in the process by other Wall Street firms. Officials of the private-equity groups could begin visiting Chrysler facilities within the next two weeks.

A private-equity buyer could acquire Chrysler and restructure it, then take it public with a stock offering or possibly sell it to another automaker.

With $62 billion in annual sales and more than 80,000 employees, Chrysler would be a challenging acquisition for even the most successful Wall Street firms. With huge health care liabilities for employees estimated at $18 billion, Chrysler is hardly a typical buyout target.

"So much depends on how much of the liabilities DaimlerChrysler is willing to retain," said David Healy, a Burnham Securities auto analyst. "But there are a million ways of structuring deals."

Blackstone is among the most prominent players in the exploding arena of private-equity funding. The firm recently completed the largest leveraged buyout ever with its $39 billion purchase of the real-estate company Equity Office Properties.

In its recent profile, Fortune called Schwarzman, Blackstone's 60-year-old CEO, "the smartest of the smart money on the Street these days." A billionaire who lives in a $30 million apartment on Park Avenue, Schwarzman is a staple of New York gossip columns and an influential Republican Party fundraiser.

But his lavish lifestyle hardly detracts from Blackstone's enviable record of successful investments in hotel chains, food companies, medical-supply firms -- and auto suppliers.

Blackstone has TRW stake

In 2003, Blackstone acquired the automotive operations of TRW Inc. for $4.7 billion and took the company public. Blackstone owns a 56 percent stake in Livonia-based TRW Automotive Holdings, the world's biggest manufacturer of auto-safety equipment such as air bags and seat belts.

Blackstone was also instrumental in the growth of Detroit-based American Axle, acquiring a controlling stake in the supplier in 1997 before selling off its shares in a series of public offerings.

"They have done very well in the auto sector," Phillippi said. "I could see them as a very serious bidder for Chrysler."

In meetings with investors this week in Europe and the United States, Zetsche declined to say how quickly DaimlerChrysler hopes to sell off the Chrysler division.

However, people close to the automaker said that Zetsche hopes to report progress on a Chrysler sale at DaimlerChrysler's annual shareholders meeting in Germany in early April.

Cerberus is newer to the automotive arena than Blackstone, but has moved aggressively into the industry recently. The firm agreed last year to purchase a 51-percent stake in the financial services unit of GM, and is leading a group to buy Delphi, GM's biggest supplier, out of bankruptcy.

GM, the No. 1 U.S. automaker, is also taking a hard look at buying Chrysler, according to people familiar with the matter.

GM Chairman Rick Wagoner has met with Zetsche about a blockbuster deal to buy Chrysler and absorb its operations into GM, and talks are continuing.

People close to GM told The News that the automaker is "in no hurry" to make a formal offer for Chrysler. But that could change with Blackstone and Cerberus accelerating their study of Chrysler's operations and sale value.
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