Chrysler deal symbolizes shift

NEW YORK - Cerberus Capital Management L.P.'s planned takeover of Chrysler Group marks a power shift on Wall Street as private-equity firms transform not only their image, but how - and why - big deals get done.

By making bigger and more complex deals, buyout shops are thinking more like Wall Street investment banks, broadening their strategy from the days when they were known for buying up companies, slashing costs and then putting them back on the market.

With Chrysler, Cerberus is talking about rejuvenating an ailing brand, not about its exit strategy.

"Private equity must now become real about the business of running businesses," said Peter Morici, a professor at the University of Maryland's Robert H. Smith School of Business. "The days of buy, strip and sell are numbered."

The deals announced so far this year include some massive price tags: Kohlberg Kravis Roberts & Co. and Texas Pacific Group are paying $43 billion for energy provider TXU Corp. Other deals include the $27.9 billion KKR-led takeover of credit card processor First Data Corp., and the $25.6 billion acquisition of student-lending firm SLM Corp. by private- equity firm J.C. Flowers & Co. L.L.C. and three other investors.

And, last week, Warburg Pincus L.L.C. agreed to pay $3.7 billion for Bausch & Lomb Inc.

All told, private-equity firms have racked up more than $370 billion in global buyouts this year. They are on pace to eclipse last year's record of $730 billion, according to Dealogic, a provider of financial data.

John Snow, the former treasury secretary who is now Cerberus' chairman, has made it clear the firm wants to revive the Chrysler brand. Cerberus is paying Daimler-Chrysler $7.4 billion for a controlling stake in the automaker, and is arranging $62 billion more in financing for its overhaul.

It also fits into Cerberus' overall strategy in the auto industry, where it controls a number of companies. The firm already owns a 51 percent stake in GMAC Financial Services, among other investments. It is also in the midst of a $1 billion takeover of parts supplier Tower Automotive Inc. and has been in talks to buy a controlling interest in another bankrupt parts supplier, Delphi Corp.

That is an important shift, analysts said. Before, it was common for private-equity firms to manage a portfolio of completely diverse companies.

"We don't buy with the intention to pursue an exit," Snow told the Associated Press in an interview. "We buy with the intention, with the clear intention, to help turn the company around, help it achieve its potential."

That's different from the slash-and-burn tactics private-equity firms have used in the past. Even Cerberus has been reproached for its handling of a few deals.

Cerberus bought Vanguard Car Rental Group Inc., which operates the Alamo and National brands, out of bankruptcy in 2003, and it was criticized for swiftly moving the corporate headquarters and cutting hundreds of jobs. It was not long after the 2004 acquisition of Mervyn's department store that Cerberus shuttered 80 locations and exited two major markets.