Built to last

14 May 2007 By Rob Cox Follow @rob1cox

The capital structure of Detroit s number three gives it more breathing room to handle a downturn in the economic cycle than GM or Ford. It will have $18bn of financial firepower, or nearly 30% of sales higher than Ford or GM. No wonder the UAW blessed the deal.

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DaimlerChrysler has agreed to sell 80% of Chrysler to Cerberus. All Chrysler's health care and pension fund liabilities will stay with Chrysler. The net cash flow effect on the German group of the complex transaction will be an outflow of $650m (E500m).

Cerberus will pay $7.4bn for 80% stakes in both Chrysler's automotive business and its financing business. $5bn will flow into Chrysler's automotive business and a further $1.05bn will go into the finance business. That will leave Daimler with an initial $1.35bn. However, it will also grant a $400m loan to the car business and absorb Chrysler's negative cash flow until the deal closes, which is expected in the third quarter. The negative cash flow, including restructuring costs, is estimated at $1.6bn.

Netting all this off produces a cash outflow of $650m. Daimler will also discharge $878m of Chrysler's longterm liabilities to it.

The German company will keep a 20% stake in Chrysler but rename itself Daimler. Daimler said the deal had the support of the UAW union.

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