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Bidding war for Chrysler could erupt

From the Detroit Insider:

Bidding war for Chrysler could erupt
Bill Vlasic, Christine Tierney and Josee Valcourt / The Detroit News

DaimlerChrysler AG's stock soared Friday to its highest level in more than six years amid indications that the bidding for the Chrysler Group has begun in earnest.

People close to the sale process said a select group of potential buyers are preparing to submit offers for the U.S. division of DaimlerChrysler by the end of next week.

One auto analyst said Friday that DaimlerChrysler had received a "joint letter of interest" from Canadian supplier Magna International Inc. and an unnamed private-equity firm to buy Chrysler for $4.7 billion.

While the bid was unconfirmed, investors reacted by driving the stock of DaimlerChrysler up 6 percent in heavy trading. The stock closed at $82.36, up $4.76, in New York -- its highest point since August 2000.

The sale process is expected to enter a critical phase this coming week, according to people with knowledge of the situation.

In addition to Magna, two rival Wall Street bidders -- Cerberus Capital Management and a partnership of the Blackstone Group and Centerbridge Partners -- are gearing up to make their own proposals to acquire Chrysler.
Executives at General Motors Corp. also have had in-depth talks with DaimlerChrysler about a potential Chrysler acquisition.

'A feeding frenzy'
A sale of Chrysler would be a seismic event in the automotive world, and mark the end of the 9-year-old transatlantic merger between Germany's Daimler-Benz AG and the former Chrysler Corp.

"There's a feeding frenzy going on around Chrysler," said David Healy of Burnham Securities. "The price for Chrysler will depend solely on how badly
Daimler wants to get rid of it."

DaimlerChrysler essentially put Chrysler up for sale Feb. 14, and people close to the company say it hopes to finalize a deal soon.
But a DaimlerChrysler official dampened speculation that an announcement might come as early as the annual shareholders' meeting, which will be held in Berlin on April 4.

The official, speaking on condition of anonymity, said it is unlikely that details of a Chrysler deal will be discussed at the meeting.

Teams from Magna, Cerberus and Blackstone/Centerbridge met earlier this month with Chrysler executives in Auburn Hills and scrutinized the automaker's finances, operations and future product plans.

Formal bids were not expected until the end of March, but an analyst suggested Friday that Magna has already made its proposal.
Cleveland-based analyst Brett Hoselton of KeyBanc Capital Markets said that Magna has joined with an unnamed private-equity partner "to buy Chrysler for roughly $4.6 billion to $4.7 billion, with the supplier looking to take a 20-25 percent stake."

Hoselton did not return phone calls, and a Magna spokeswoman declined to confirm the existence of a bid.

The spokeswoman, Tracy Fuerst, said Magna was deeply interested in the fate of Chrysler because DaimlerChrysler is one of its biggest customers.
"It is imperative that Magna has a full understanding of the situation regarding the future of the Chrysler Group," Fuerst said in an e-mail. "Therefore we continue to review potential alternatives regarding the future of the Chrysler Group."

A person familiar with Magna told The Detroit News that the Canadian supplier, based in Aurora, Ontario, had not yet partnered with a private-equity firm.

Magna officials, however, have recently indicated to Chrysler executives that the company would need a financial partner to bid competitively against Cerberus and the Blackstone team.

Citing unnamed sources, Hoselton said in his report that Magna considered its valuation of Chrysler low "and unlikely to prevail." But, he said, Magna "also sees it as an opportunity to purchase an inexpensive stake in the automaker should other bidders retreat."

Some labor representatives on DaimlerChrysler's governing supervisory board might oppose a sale of Chrysler to a private equity firm that might break up the automaker.

All options are sought
However, DaimlerChrysler officials emphasized that they have not ruled out a private-equity buyer or any other option.

One official reiterated what DaimlerChrysler CEO Dieter Zetsche said on Feb. 14 -- that he was seeking an outcome that would be good for both Chrysler and DaimlerChrysler.

"We want a good solution for Chrysler," the official said. "That means for the employees and the company."

Up to now, Magna has not been considered a likely candidate to take over
Chrysler, even though the supplier has experience assembling vehicles such as the Jeep Grand Cherokee at its Graz, Austria, plant.
"They've got their feet wet on the OEM (auto-making) side so this would be an expansion but it would be one hell of an expansion," said Gregg Klein, a New York-based analyst with BNP Paribas.

Erich Merkle, an analyst with the forecasting firm IRN Inc., said Magna's expertise in vehicle assembly could help its bid for Chrysler. "They're not new to that game," he said.

However, if Magna bought Chrysler, it would find itself in direct competition with another of its largest customers, GM. "I'm a little fuzzy in that area, in how that would all unfold," Merkle said.
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