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Published: Monday, 2/26/2007

DCX considers swapping Chrysler for stake in GM


FRANKFURT, Germany DaimlerChrysler shares edged higher today on a news report that the automaker was considering taking a stake in General Motors Corp. in exchange for its struggling Chrysler unit.

Meanwhile, Russia s second-biggest automotive company denied that it was interested in the Chrysler business.

Earlier this month, DaimlerChrysler Chairman Dieter Zetsche said all options are on the table for the money-losing Chrysler business and he would not rule out a possible sale.

The Financial Times reported Monday that DaimlerChrysler was considering a move that would see it take a stake in GM in the form of a payment were a deal to sell it Chrysler were to go forward.

GM is the world s biggest automaker, but has been losing market share at home and is undergoing a massive restructuring that includes closing plants and shedding jobs.

The newspaper, citing people familiar with the situation, said DaimlerChrysler was weighing the possibility of trading Chrysler for the GM stake, but added it was also considering a cash sale to private equity firms, including Apollo Management LP, Blackstone Group, Cerberus Capital Management LP and Carlyle Group, among others.

DaimlerChrysler AG did not comment on the report, reiterating its previous stance that all options for Chrysler are being considered.

On Friday, a senior Chrysler official told The Associated Press that the company is giving detailed financial information to selected potential suitors and is working with its investment bank, JPMorgan Chase & Co., to avoid divulging sensitive information.

Meanwhile, Russia s second-biggest automotive company, OAO Gaz Group, shot down a report in German weekly magazine Focus that it was interested in acquiring Chrysler.

The magazine, citing no sources, said that Gaz, which receives four-cylinder engines from Chrysler for the Russian company s cars and minivans, was interested in Chrysler.

On Monday, Gaz said it had no interest in a deal for Chrysler. Volkswagen AG, the Renault-Nissan auto alliance and Hyundai Motor Co. have previously said they had no interest in the division.

Analysts said an equity deal would benefit GM given that a domestic tie-up would be easier for Chrysler instead of a foreign buyout.

Since GM is short of cash, an equity deal would make sense if it is interested in Chrysler, and an equity valuation of Chrysler at, say, 3 billion euros ($3.94 billion), would wind up giving DaimlerChrysler a 20 percent stake in GM, said Stephen Cheetham, a senior analyst with Sanford C. Bernstein Ltd. said.

This kind of deal has some face-saving potential for management, and we believe that from a shareholder perspective, 20 percent of a combined GM/Chrysler entity is preferable to owning Chrysler outright, said Cheetham. However, it does not give DaimlerChrysler a clean break from equity exposure to the troubled world of U.S. domestic carmakers, and we would expect the presence of a GM stake to be an ongoing irritant in (its) relations with investors.

DaimlerChrysler s shares inched up 0.3 percent to 53.93 euros ($70.83) in Frankfurt.

Chrysler earlier this month announced it lost $1.475 billion in 2006 and said it expects losses to continue through 2007. Parent DaimlerChrysler, however, earned $4.26 billion in 2006.

The news was accompanied by plans to shed 13,000 jobs, including 11,000 production workers and 2,000 salaried employees as it trims expenses and factory capacity to match declining sales. The automaker also announced the closure of one plant and layoffs at several others.

Read more in later editions of The Blade and toledoblade.com.

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