DealZone

A checkered flag of surrender

After day one of round two of the $34 billion automaker race to viability, a merger between GM and Chrysler is back on the table, along with just about everything else. Lawmakers are looking for that magic headline that will make the bailout make sense to taxpayers. Senate Banking Committee Chairman Sen. Chris Dodd noted that nothing focuses attention on solutions like impending death.

So far, prospects of an auto czar doling out big chunks of money or a federally mandated merger haven’t convinced the Treasury to use its mighty TARP chest to fund salvage efforts for the auto industry. The Fed could make a loan to automakers in some circumstances. It is expected to send a letter to Dodd today explaining how it must obtain sufficient collateral under law to make any emergency loans, a source familiar with the letter told Reuters.

Motor Trend’s blog argues that a shot-gun wedding would just allow GM to replenish a brand line-up that it has just shrunk to make itself more nimble. In his testimony, GM CEO Rick Wagoner noted that earlier merger talks with Chrysler failed because GM did not have the money.

Chrysler CEO Robert Nardelli said his job would likely be the first to go in a merger with GM, but “I would do it” if it would save Chrysler and its workers. Such self-sacrifice is about as heartwarming as the auto execs taking hybrids to Washington instead of jets. Nardelli has already said he is willing to have his salary cut to $1, which is where it is already. His severance package from his days at Home Depot will ensure that he can always afford to buy a car.

But if lawmakers are hoping a merger will somehow resuscitate the industry, they may want to think again. United Auto Workers President Ron Gettelfinger questioned claims of cost savings from a merger and said such a deal would bring “unbelievable” job losses. No congressional action on aid is expected before next week — and perhaps not even then — despite dire warnings that GM could collapse by year-end without aid.

See your $25 bln, raise you $50 bln

Detroit’s Big Three were on Capitol Hill yesterday looking for a bigger bailout. They knew the results numbers coming out this morning would be grim and would offer little cheer for the future. The $700 billion in financial industry aid that motored through Congress last month must have flashed a big green light for the auto industry.

Originally, $25 billion in loan guarantees were offered to help U.S. cars get greener. But the car companies say the restrictions on how they can use that money make it less than helpful. In fact, GM and Chrysler might not even pass a financial viability test attached to the funds: If strictly enforced, the test could keep them from getting money at all.
 
Enter $50 billion more now being sought by the Big Three. Half of this amount is meant to pay for healthcare and other benefits for retired autoworkers. The other half would help to ensure solvency — perhaps making GM and Chrysler healthy enough to qualify for the initial aid.
 
To put the total proposed package in perspective, it amounts to a rebate of roughly $5,500 on every car, minivan, SUV and crossover that will be sold in the United States this year.

Deals of the day:

* Panasonic said it would acquire smaller rival Sanyo, creating Japan’s top electronics maker and foreshadowing further consolidation in an industry hit by slowing consumer demand.

GM comes up empty

GM went trick-or-treating early but it looks no one answered the door. Either that, or its trick wasn’t very good. Either way, it appears to have come up empty-handed in its bid for government goodies.

The much-talked about General Motors-Chrysler merger is off the table for now. Reuters is reporting that talks hit an impasse after the Bush administration said “no” to funding for the deal, citing three people with direct knowledge of the talks.

GM had approached the Treasury in recent days about support for the merger through some $10 billion in new funding that would have included taking an ownership stake in the merged company, people familiar with the talks have said.

20 percent = zero

At the end of December 2007, Daimler’s 20-percent stake in Chrysler was valued at about $1.18 billion.

At the end of June, Daimler valued that investment at about $219.6 million.

Today, Daimler said the book value of that 20-percent stake is zero.

That’s right, zero.

To put that zero in perspective:

A year ago, after Daimler sold 80 percent of Chrysler to U.S. private equity firm Cerberus Capital Management, the German automaker listed the value of its minority interest at $1.8 billion.

Ten years ago, Daimler paid $36 billion for all of Chrysler.

For Daimler to disclose that the book value of its stake has come to nothing, and to do it at a time when it is in talks to sell that stake to Cerberus, is bad news for Chrysler.

Disk trouble

Sandisk flash memory cardsAnother day, another round of hand-wringing: Do I, or don’t I? That seems to be the mantra of top executives mulling buys in what continues to be a rocky market while those on the receiving end are left wondering will he, or won’t he?

So far, it ain’t looking good — for the sellers, or the buyers.

Late last night, Samsung Electronics Co Ltd, the world’s top memory chip maker, decided to dump its pursuit of flash memory card maker SanDisk Corp. That unsolicited deal would have been worth $6 billion, but Samsung apparently got cold feet after seeing SanDisk’s wider-than-expected quarterly loss.

“Your surprise announcements of a quarter billion dollar operating loss, a hurried renegotiation of your relationship with Toshiba and major job losses across your organization all point to a considerable increase in your risk profile and a material deterioration in value, both on a stand-alone basis as well as to Samsung,” Samsung CEO Lee Yoon-woo wrote to SanDisk management in a letter disclosed by Samsung on Wednesday.

Lehman seen looking to Asia

lehman.jpgBy most accounts, the sovereign wealth funds of Asia are licking their burnt fingers after picking up big stakes in sickly U.S. financials. So we read with interest a report in the NY Post that Lehman Brothers CEO Dick Fuld has held talks with South Korean and other Asian investors about possibly raising more capital. Smell a little Déjà vu? This would certainly be a hard sell for Fuld and Co., but with the dollar showing signs of recovery, and a dearth of cheap alternatives, they could just be tempted to try to catch the proverbial falling sword yet again, further confounding the conservative investment strategies they’ve built up over the past few decades of wealth generation.

What would you call a midsize Chrysler/Nissan car – a Chryssan, a Nissler? Ok, so neither is particularly witty or catchy, but branding is probably not behind what the two automakers are up to. The Wall Street Journal reports the automakers will jointly produce midsize cars, after agreeing in April that Nissan would build a small car for Chrysler using the North American automaker’s design and Chrysler would build a new full-sized pickup truck for the Japanese automaker using Nissan’s plans. The two companies have since been discussing an agreement under which Nissan would produce midsize sedans that Chrysler would sell in the U.S. under its own name, the Journal said, citing people familiar with the matter. Chrysler is evaluating whether it makes financial sense to partner with the company, the paper said.

Other deals of the day:

* Montagu Private Equity has hired Morgan Stanley to look at strategic options for BSN Medical, a move which could lead to a sale of the business for up to 1.7 billion euros ($2.64 billion), a person familiar with the situation said.

Need less, want less

chrysler.jpgFresh from having announced the end of its leasing programs, Chrysler Financial’s credit line is shrinking. The 20 percent cut in its credit facilities to $24 billion makes plenty of sense, given their downsizing, and on Friday it said its lenders were happy with the move to drop leasing. But The Wall Street Journal says Chrysler couldn’t actually get the whole $30 billion. It also says the automaker is paying a far more chunky 1.1 to 2.25 percentage points over Libor on different parts of the funding, from 0.3 to 0.5 percentage point on its borrowings a year ago.

Labor issues are a whole lot more dangerous to a deal in Germany than most other Western economies. So when Volkswagen‘s senior labor leader says talks to agree on workers’ rights in Porsche‘s new holding company are in danger of collapse, it’s probably time to check the engine. Responding to accusations from his Porsche counterpart that VW labor was blocking a deal, Bernd Osterloh said Zuffenhausen-based Porsche aimed to create a two-class system in which 12,000 Porsche employees outranked VW’s massive workforce. “If the 360,000 men and women working in the Volkswagen Group were of the opinion that a labor contract has to be terminated, Porsche representatives in the holding’s works council could then prevent this, according to the plans in Zuffenhausen,” he said in comments sent to Reuters.

Other deals of the day:

* Australia’s biggest port and rail operator, Asciano, rejected an unsolicited private equity bid worth around A$2.9 billion ($2.7 billion), saying the offer undervalued its business.