DealZone

Fiat a compli

GENERAL-MOTORS/In retrospect, GM CEO Rick Wagoner’s demise was perhaps the most inevitable twist in the autos overhaul saga to date. The chance that he would present a radical plan to Obama this week, one dramatic enough to save his job, was slim at best. A more shocking result, one clearly less viable for Obama, would have been to make a few more threatening noises and hand out the cash that the company so desperately needs without demanding a very public pound of flesh – a head, in this case.

With only another 60 days to effect a U-turn in defiance of a skidding market, former GM COO Fritz Henderson doesn’t have a lot of room to maneuver. It’s hardly enough time for Washington to have installed a new crash-test chief executive.

The Chrysler bailout story is more intriguing. The private-equity owned car maker has been given 30 days to do a deal with Fiat, which has in deal talks to date pledged somewhere around zero in financial support. If that price was too much for the Italian auto maker, they may think that the ticking of the clock could give them some leverage to squeeze a few billion out of either Chrysler’s private-equity owners or U.S. taxpayers.

While Fiat managers may feel like kids in a Hot Wheels factory, they should probably temper their enthusiasm. Giving a foreign car maker U.S. taxpayer dollars would probably be politically poisonous to Obama, leaving bankruptcy a more viable option for the private-equity venture.

Deals of the Day:

* Turkey’s Sabanci family is buying a 15.3 percent in German airline Air Berlin, scooping up part of Len Blavatnik’s stake, more than two months after the U.S. billionaire sold the holding.

An offer they can’t refuse

SAAB/You can almost hear the outrage machines coughing and spluttering to life in Congress. GM and Chrysler‘s latest bailout requests, though well telegraphed, will be reviewed by their own special branch of government – call it the Car Komintern, perhaps, since it took over from the Car Czar concept. But legislators who are concerned that they are being bullied into throwing good money after bad will have plenty to say about the nearly $22 billion in additional government loans the automakers say they need.

The sum is nearly $5 billion more than the automakers have already received from the Treasury. And despite having provided more detail on how the money is to be spent, the industry’s viability is intrinsically linked to economic recovery. There is no Car Czar, and there certainly is no Economy Fairy.

The Detroit Free Press argues that the automakers are being a whole lot more candid about what they plan to do with the funds than the banks were when they got bailed out. And politicians supporting the automaker rescue may be able to get a lot more mileage out of the dangers of bankrupting the Midwest labor force than Wall Street has gotten convincing America that bankers deserve subsidized golden parachutes and bonuses for running their companies into the ground.

Bankruptcy or Bust

an_american_revolution_bannerAlmost on cue, with an end-March restructuring plan deadline looming, reports of General Motors’ impending demise are bubbling up from the slush of a winter’s economic meltdown. The Wall Street Journal reports GM is looking to take back big chunks of bankrupt parts supplier Delphi, which it spun off a decade ago. The move would make GM bigger just when it is busy right-sizing. Is it taking aim at gaining that exalted Too Big To Fail status that has saved so many banks?

Meanwhile, Bloomberg has an analytical piece suggesting the U.S. government will insist on bankruptcy at GM and Chrysler, engineered to put taxpayer money above other claims. Whatever the case, it is clear the fate of the automakers is again the subject of much debate in the Oval Office. Turnaround plans from GM and privately held Chrysler are expected before the end of the month, and the White House says no decisions are expected before then.

The Obama administration confirmed our reporting that it had hired two law firms to assist Treasury Department officials on auto restructuring matters, lending some credibility to the bankruptcy argument. Lawyers tend to hover and hop around with vulture-like efficiency when talk of bankruptcy funding gathers momentum.

Terminator IV, starring Chrysler

TerminatorChrysler’s got $4 billion in emergency aid from the U.S. government and has said it will seek another $3 billion in government loans. And yesterday it agreed to form an alliance with Italy’s Fiat as it looks for the road out of the woods.

(The Fiat deal fine print reportedly makes it conditional on Chrysler’s getting that extra U.S. loan.)

But the troubled auto maker is not letting its economic ails keep it from going to the movies.

from Global Investing:

Sen. Corker to Chrysler: best hope is merger

Tennessee Sen. Bob Corker (right, in the driver's seat next to Mark Fields, Ford's president of the Americas), who pushed for tough conditions on the $17.4 billion U.S. government bailout for General Motors and Chrysler, said at the Detroit auto show that he hoped Chrysler would find a merger partner to survive.

"Chrysler probably needs to merge with somebody, not necessarily disappear from the standpoint of existence," said Corker, who added the automaker owned by Cerberus Capital Management was not making the needed investment to remain competitive. He spoke to reporters as he toured the show before meeting with executives for GM, Chrysler and Ford.

Corker, whose home state includes the U.S. headquarters for Japan's Nissan, also said he felt GM's debt load was too heavy and it may not meet the restructuring targets set out under the $13.4 billion loan granted to the company by the Bush administration.

Santa for automakers, Grinch for taxpayers?

grinchA company in the U.S. auto industry fails — and the government steps in as savior. Yet again. That’s right. Santa visits the automakers this year while the Grinch steals taxpayers’ Christmas.

The Bush administration is buying $5 billion in equity in GMAC – the finance arm owned by GM and Cerberus Capital Management. The Treasury has also offered a new $1 billion loan to GM so the automaker could participate in a rights offering at GMAC.

Yes, this in addition to the recent $17.4 billion emergency loan to save GM and Chrysler from bankruptcy.  In fact, the government already helped GMAC last week, when the Federal Reserve approved the finance company’s application to become a bank-holding company.

Autos closer to life support

CAMBODIA-BIRDFLU/The lame duck may have some quack in it yet.

When President Bush said on Thursday that his administration would not allow a “disorderly” bankruptcy or collapse of the U.S. automakers — leaving “orderly” bankruptcy on the table — it seems to have spurred on the negotiations between Detroit and the White House. General Motors and Chrysler are now close to securing emergency loans as part of a U.S. government aid package, according to sources familiar with the talks.

The aid package being spearheaded by the White House would demand that both automakers restructure by seeking new concessions from unions and creditors, two people briefed on the talks said. With the automakers and the United Auto Workers both desperate to stave off a Chapter 11 filing, which they say would be disastrous, the White House’s discussion of “orderly bankruptcy” may have kickstarted negotiations that have been dragging on ever since Congress rejected the bailout bill once and for all.

UPDATE: Bush is now due to make an announcement on the auto rescue plan at 9 a.m. Eastern time.

One way to shrink a bailout…

USA-BUSH/Each day that goes by without a Detroit bailout, the Dwindling Three get smaller. Chrysler is shutting down production for at least a month, and The Wall Street Journal reports that the company is again negotiating with GM about a merger. GM, which is denying it is talking again with Chrysler, slashed its Q1 production target by 60 percent and said it would temporarily idle about 30 percent of its North American assembly plant volume.

On his way out the door, U.S. President George W. Bush went on Fox News and talked about how seriously he was looking at a bailout, which is shaping up to be one of his last acts as president. Treasury Secretary Hank Paulson, who if nothing else opposes a bailout being funded from the TARP money set aside for banks, is behind the wheel. Moody’s said the chance of an automaker bankruptcy – prepackaged, coupled with government assistance – is now 70 percent.

Would it be cynical to note that each passing day may lower the price of a sector-wide bailout? What started as a request for $35 billion was quickly lopped down to $15 billion and is now widely quoted as somewhere closer to $14 billion.

A bailout too far

AUTOS/Senate Republicans who killed an auto industry bailout must have had a particularly nasty sense of deja vu. If they didn’t get on board, the economy would collapse. “For the hundreds of thousands of people whose jobs depend on this industry, this will not be joyous season,” bellowed Sen. Chris Dodd. It was up to the Republicans. To save Detroit, all they had to do was sign over a fraction of what they’d agreed to for Wall Street.

It wasn’t as if there was another industry waiting in the wings, ready to head to Washington demanding a bailout as soon as the automakers got theirs. So the Republicans couldn’t have feared yet another dollop of largess around the corner. Ultimately, it came down to good old lefty Union vs. rightly Republicans arguing over when workers would agree to take pay cuts.

Has the countdown begun to industrywide bankruptcy? That’s what the automakers say — because of their shared suppliers and vendors, the failure of one Detroit automaker could drag down the other two, as well as other businesses. GM, Ford and Chrysler employ nearly 250,000 people directly, and 100,000 more jobs at parts suppliers could hang on their survival. The companies say one in 10 U.S. jobs is related to the auto sector.

With a pit crew like this…

As GM’s resident guru, Bob Lutz, was telling CNBC he was guardedly optimistic that a short-term loan will be made available to the auto industry, the global picture clouded considerably. The chief of Italian carmaker Fiat told a magazine the company was too small to survive alone, Sweden was reported mulling a rescue package for Volvo and Saab, and Toyota, the world’s biggest car maker, was said to be eyeing spending cuts of up to 40 percent.
 
Fiat’s chief, Sergio Marchionne, went a little further, prognosticating that Chrysler will disappear and that only six big players will be left around the world when the dust settles. 
 
White House and congressional negotiators are working on an emergency rescue for the struggling industry, but passage of even a slimmed-down lifeline is far from certain. Sen. Richard Shelby, the top Republican on the Senate Banking Committee, has threatened a filibuster to block any bailout, according to Politico.com. The Senate is due back in session today.
 
Shelby, an Alabama Republican who has spoken out against the proposed “bridge loan” emergency package, indicated he was ready for battle. “This is a bridge loan to nowhere,” said Shelby, appearing on “Fox News Sunday” with Sen. Carl Levin of Michigan, a Democrat. Senate Banking Committee Chairman Christopher Dodd, who is leading efforts to craft bailout legislation, told CBS that GM Chairman Rick Wagoner should resign. Levin, whose state is home to the major automakers, said he was confident there would be a deal but was less certain a filibuster could be avoided.
 
Deals of the day:
* San Miguel will buy a majority stake in Petron from the Ashmore Group for about 32.8 billion pesos ($675 million) after the British investment company completes a deal with the Philippine government, San Miguel’s president said.
* U.S. energy producer Arch Coal expects production in 2009 to be flat or slightly lower while overall output for the U.S. coal industry will slow, and also sees plenty of opportunity for acquisitions amid the economic downturn.
* Hedge Fund firm Centaurus is likely to sell its minority stake in French IT services group Atos Origin, but not in the immediate future, sources close to the matter said.
* Belgian-Dutch financial services group Fortis has upped the selling price of its Belgian insurance unit, which French peer BNP Paribas agreed to buy, a Dutch newspaper said. * One potential investor has already cast its eye over Latvian bank Parex, which the state has had to rescue, an official at the country’s bank supervisory body was quoted on as saying.
* Investment group Evolve Capital said it had offered 10.7625 pence a share to buy niche investment bank Blue Oar in a deal that would value the company at 17.9 million pounds ($26.3 million).
* British mid-sized broking firms Ambrian Capital and Panmure Gordon & Co said they have held talks regarding a possible merger between the companies.
* Qantas Airways warned investors its proposed $5.6 billion merger with British Airways faced major obstacles over the terms of the deal and stressed there was a reasonable chance talks would fail.
* French healthcare diagnostics group BioMerieux said it had acquired privately held PML Microbiologicals, a U.S-based provider of culture media and microbiological products.
* Peabody Energy, the most valuable U.S. coal miner, said it is eyeing potential investments in the western regions of China, the country that is expected to drive much of the global growth in demand for coal.
* Swiss drugmaker Roche Holding is still committed to its $43.7 billion bid to buy out U.S. biotech group Genentech, its chief executive was quoted as saying in an interview. * Santos, Australia’s third-largest oil and gas firm, was considering potential initiatives but talk of a possible bid from China National Petroleum Corp (CNPC) was pure speculation, the company said.

(Photo: Reuters/Joachim Hermann)