Cerberus taking a huge gamble on Chrysler deal

NEW YORK - Cerberus Capital Management L.P., a private equity firm named after the three-headed hound that guarded the gates of hell in Greek mythology, is now part of U.S. corporate lore.

The New York firm, run by financier Stephen Feinberg, secured a $7.4 billion deal to buy a controlling stake in Chrysler Group. The agreement unwinds the controversial 1998 takeover of the U.S. automaker by Daimler-Benz AG, a deal that set the bar for massive cross-border acquisitions.

Feinberg, armed with about $16 billion in capital, is taking a huge gamble. The deal could transform Cerberus into a major force in the automotive industry, especially considering that it owns a 51 percent stake in GMAC Financial Services and is in the midst of a $1 billion takeover of Tower Automotive Inc.

But some analysts believe Feinberg faces a serious challenge given the slumping U.S. auto industry.

"Chrysler now has a one-in-five chance of being around 10 years from now, which is still a lot better chance than it had yesterday," said Peter Morici, a professor at the University of Maryland's Robert H. Smith School of Business. "Cerberus might be the only one out there that can do it. They have the management experience, a record of successfully cutting costs, and are willing to bet real money you can make cars in North America successfully."

Morici and others tracking the deal pointed to a "dream team" of sorts that would help increase the odds that Feinberg would turn Chrysler around.

Leading the list is John Snow, the former Treasury secretary, who was appointed chairman of Cerberus in October. It also includes former Chrysler chief operating officer Wolfgang Bernhard, who recently joined Cerberus as a senior executive, and David Thursfield, who ran Ford Motor Co.'s operations outside North and South America. He joined Cerberus in April 2004 as a senior member of its automotive team.

Cerberus, founded in 1992, has specialized in buying distressed companies and turning them around through heavy cost-cutting. With about $25 billion in assets under management, the firm owns about 50 companies with combined revenue of more than $60 billion, according to its Web site.

Those companies are in a broad swath of industries and include Formica Corp. and Air Canada. In the auto industry, Cerberus owns Guilford Mills, the largest automotive seating supplier in the United States, and Peguform Group, a German manufacturer of interior and exterior plastic parts used in automobiles.

Business: Private investment in companies with $60 billion in annual revenue.

Industries: Include aerospace/defense, apparel, automotive/industrial, financial services, health care, real estate, retailing and travel.

Companies: Include Air Canada, Bank Leumi, Formica Corp., Mervyn's Inc. and Vanguard Car Rental.

Headquarters: New York.

SOURCE: Cerberus Capital Management L.P.EndText