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DaimlerChrysler Surges On Possibility Of Deal to Sell U.S. Unit

DaimlerChrysler shares gained sharply on Friday on speculation that the German automaker could be nearing a deal to sell struggling U.S. unit Chrysler.

Sources familiar with the sales process have told Reuters that DaimlerChrysler is looking to get initial indications of bids for Chrysler by the end of the month, just ahead of Daimler's annual meeting in Berlin.

However, the powerful German trade union IG Metall is opposed to DaimlerChrysler selling its Chrysler business to a private equity buyer, a regional union leader told a German newspaper.

"We don't have any interest in seeing Chrysler sold to a locust," Joerg Hofmann, the head of union IG Metall in the German state of Baden-Wuerttemberg, told the Berliner Zeitung. "There should be a solution for our colleagues in the U.S. which benefits the Chrysler brand," Hofmann said. "A purely financial investment with the aim of making a quick buck doesn't do much in this respect."

The term locust refers to a comment about foreign investors made by a key German politician in 2005.

Private equity firms Cerberus, Blackstone Group and Magna International have emerged as the leading candidates to buy Chrysler, now the fourth-biggest U.S. carmaker, people familiar with the matter have told Reuters.

On Friday, an analyst said auto parts supplier Magna had joined with a private equity partner to offer to buy Chrysler for between $4.6 billion and $4.7 billion.

KeyBanc Capital Markets analyst Brett Hoselton cited unnamed "sources" as saying that Magna was looking to take up to a 25% stake in Chrysler under the terms of the proposed deal.

Hoselton said in a note for clients that the bid had been made to Chrysler parent DaimlerChrysler of Germany in the form of a "joint letter of interest." He did not name the private equity firm partnered with Magna.

Hoselton said other leading contenders to buy Chrysler had valued the automaker at between $5 billion and $6 billion.

"While Magna views its offer as low and unlikely to prevail, it also views it as an opportunity to purchase an inexpensive stake in the automaker should other bidders retreat," Hoselton said.

A spokeswoman for Magna, Tracy Fuerst, said the supplier would "continue to review potential alternatives regarding the future of the Chrysler Group.

"Discussions about this matter are strictly confidential and will not be disclosed publicly, nor will the company comment on speculation related to those discussions," she said.

General Motors has also talked to Chrysler about expanded cooperation in vehicle development or a potential acquisition, according to those familiar with the talks. Shares in GM rose Friday on the view that Chrysler's larger Detroit-based rival was less likely to mount a costly bid of its own in competition with other buyers.

Chrysler's unions have expressed concern about the prospect of a private equity buyer ending up in control of the automaker because of concern that a financial buyer could take a much tougher line toward labor costs.

Canadian Auto Workers president Buzz Hargrove noted that Magna would remain a minority partner under the terms of the deal as they were reported.

"It seems to me, until I see more detail, that the private equity group have all the power," said Hargrove. "That's a big concern to us, because their history is to cut a lot of jobs, close a lot plants, get lean and mean in a hurry to sell and make a lot of money for executives and throw a lot of people out of work."

Hargrove said the CAW, which represents about 9,500 Chrysler workers in Canada, would fight any potential deal for Chrysler that it judged was not in the best interests of its members.

"Our preference is to work with somebody who is out to grow the business and wants to create jobs, as opposed to somebody who wants to dismantle it and sell it," said Hargrove.

Key Banc's Hoselton said his industry sources indicated that DaimlerChrysler was "very interested in divesting itself of Chrysler."

DaimlerChrysler Chief Executive Dieter Zetsche announced in mid-February that all options were open for Chrysler, which posted a $1.5 billion loss last year after badly misjudging the market for its trucks and SUVs.

Hoselton said one sign of the seriousness of the sale process was that Chrysler was in the process of being removed from the financial reporting system used by its parent company, Daimler. Supplier invoices for Chrysler are now being handled through a third-party system, he said.

A DaimlerChrysler spokesman declined comment on Chrysler.

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