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Chrysler deal doesn't end Cerberus' interest in Delphi

From detnews | May 16 , 2007

Some analysts say Cerberus Capital Management LP can help lead Delphi Corp. out of bankruptcy even as it executes a deal to buy a controlling stake in the Chrysler Group, but they differ on whether the private equity firm remains a major player in the distressed auto supplier.

DaimlerChrysler AG said Monday it would sell 80.1 percent of money-losing Chrysler to Cerberus for $7.4 billion.

In December, Cerberus was part of a group of investors that said it would invest $3.4 billion in Troy-based Delphi in exchange for new shares of Delphi stock as it emerged from Chapter 11 bankruptcy protection.

New York-based Cerberus was to have put up half the total.

But the United Auto Workers union was reluctant to grant concessions sought by Cerberus, and Delphi said last month that Cerberus was pulling out of the group, although as recently as last week that had not happened.

"I do think they're still involved in Delphi. I can't imagine they're taking an eye off that ball," said Erich Merkle, an industry analyst with auto consulting company IRN Inc. in Grand Rapids. "It could be real opportunity if the situation presents itself right."

Cerberus spokeswoman J.J. Rissi said the firm had no comment on Delphi. A message seeking comment was left Tuesday morning with Delphi.

Just how much of an eye Cerberus is keeping on Delphi is open to interpretation.

The investor group's offer was contingent upon Delphi, General Motors Corp. and the UAW reaching a wage-and-benefit agreement. The UAW has been reluctant to grant concessions sought by Cerberus.

The union agreed earlier to reduce Delphi's work force through mass buyouts and early retirement offers and to lowering wages for new workers hired to replace some of those who left.

Kevin Tynan of Argus Research, a New York-based equity research company, believes Cerberus still could be involved but "on a much smaller scale than what was originally lined up to be."

"I would say that if they're involved at any level, it's unwinding -- especially with the deal for Chrysler being much larger," he said. "It's more lucrative, potentially. If I had to speculate I would say that's where (Cerberus) would be focusing."

Catherine Madden, an auto analyst with Boston-based Global Insight, said despite the holdups, her firm's expectation is that Cerberus will ultimately resolve its issues with Delphi. And, she said, it would be an equity investment large enough that allow Delphi quickly and successfully pull off its turnaround.

Both Madden and Merkle say the legacy costs related to pensions and health care are significant hurdles, and Merkle said the "triangulation" of Delphi, GM and the UAW makes it more complex than Chrysler to pull off.

Still, Merkle said, Cerberus sees the reasons to keep a stake in Delphi beyond the struggles of "the old-line automotive operations."

"Once you start shedding (those), it's a pearl," he said. "Safety, electronics, medical -- those are highly profitable business for Delphi."

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