On the newstands headline was "Rubles for Chrysler ?"
Charles
^^^^^^^^
Magna's partnership with Russian tycoon might bolster Chrysler bid
May 11, 2007
BY TIM HIGGINS
FREE PRESS BUSINESS WRITER
TORONTO -- Magna International Inc., believed to be the leading bidder to buy
the Chrysler Group, announced a $1.54-billion Russian financing deal Thursday
that gave a new twist to possibilities for the struggling Auburn Hills
automaker.
By the end of the day, Magna's powerful chairman, Frank Stronach, was
speculating about building Jeeps in Russia.
Stronach and Russian aluminum magnate Oleg Deripaska will share control of a
newly formed holding company that will own 15% to 16% of Magna shares and have
the controlling interest in Magna, company officials said.
Deripaska, once banned from the United States for alleged ties to organized
crime, was banned again last year -- stripped of his U.S. visa -- over concerns
that he may not have been fully truthful with the FBI, according to a Wall
Street Journal report.
The surprise deal came shortly before Stronach took the stage at the Roy
Thomson Hall for Magna's annual shareholders meeting in Toronto.
While officials for the auto supplier wanted to focus on its 50th anniversary
and new Russian partner, one shareholder stood and asked the question on
everyone's mind: "When am I going to ride in a Magna-Chrysler car?"
The audience erupted in applause.
Stronach said during a news conference that the deal is not about his company's
interest in Chrysler, which DaimlerChrysler AG is considering selling. "It has
no bearing," he said.
Rather, Stronach said the partnership will help Magna take advantage of the
growing auto industry in Russia.
Deripaska owns Basic Element, one of the largest privately held conglomerates
in Russia, including a subsidiary called Russian Machines. Russian Machines
owns an interest in Gaz Group, Russia's second-largest automaker.
Stronach said he met with Russian President Vladimir Putin before making the
deal. He also said it could create 300,000 jobs over 10 years.
David Cole, chairman of the Center for Automotive Research, said that when he
first heard rumors of a Magna deal with a Russian, he discarded it.
"This sounds crazy, but this is an amazing world right now," Cole said.
Although Russia is "really beginning to accelerate now, if Magna is Magna,
anything they do has to have a connection to a Chrysler deal."
Also in the hunt for Chrysler are two private-equity firms, Blackstone Group
and Cerberus Capital Management.
DaimlerChrysler is Magna's largest customer, but analysts have said others,
such as General Motors Corp., might object to a Magna-Chrysler deal.
Himanshu Patel, an analyst with J.P. Morgan Securities Inc., said he sees some
benefits to Magna's deal with the Russian.
"Most interestingly, this deal could provide a creative platform to realize
Stronach's interest in Chrysler," Patel said in a note to clients. "Chrysler
could be bought by" the new holding company "instead of directly by" Magna.
Magna and its Canadian investment partner Onex have an offer on the table, said
to be worth $5 billion, to buy the Chrysler Group. Stronach indicated Daimler
is interested in keeping a stake in the Chrysler Group and he left open the
possibility for more investors.
"Is it possible to get a fourth or fifth? I think it is. I think we would use
any partner which can make a contribution so that Chrysler can be successful,"
Stronach said.
German newspaper Frankfurter Allgemeine Zeitung quoted Magna co-Chief Executive
Officer Siegfried Wolf on Thursday as saying Magna wants a minority stake in
Chrysler and that the deal is structured so Chrysler would be owned by a
holding company separate from the auto-supply business, Reuters reported.
Under the investment plan announced Thursday, Russian Machines will buy 20
million shares of Magna to be held by a holding company.
Stronach will place his super-voting shares into the holding company, which
controls a little more than half of the shareholder votes. In addition, some
senior Magna executives will put shares into the holding company, which will
have a 14-person board with six appointed by Stronach's trust, six by Russian
Machines, plus Magna's chief executive officers.
"Our partnership with Magna gives us unique competitive advantages and
significant growth potential within domestic and neighboring markets,"
Deripaska said in a statement.
Stronach said the deal has a mechanism to undo the marriage if things go sour.
Deripaska can pull out at year two and Stronach at year three.
The deal could be wrapped up in the third quarter.
Stronach acknowledged Thursday that the Russian deal could have an impact on
Chrysler if Magna buys it.
"I think there would be a great market there. We would very much endorse and
say look, let's build Jeeps there in Russia," Stronach said, speaking
hypothetically.
Stronach said Wednesday that Magna, the world's third-largest auto supplier,
has $2 billion on hand and that he does not plan to take on additional debt for
a purchase, according to a New York Times report.
Other reports said Stronach indicated he expects to learn soon what role his
company will play with Chrysler.
The Toronto Star quoted Stronach as saying the Chrysler Group will need
changes, probably including jobs cuts, to be profitable.
"Sometimes, when you are sick, you've got to take some drastic measures," he
said. "And that's unfortunate."
Contact TIM HIGGINS at 313-222-8784 or [EMAIL PROTECTED]
. Post a Comment View All Comments
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zincher
If you don't like russian guy, you, probaly will get somebody from our best
friends in middle east: fat arab sheik, oil rich, who sucked the billions from
american workers pockets.
Posted: Fri May 11, 2007 2:13 pm
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330i
Nick:
"330i.... it was a rhetorical question, but thanks. "
I know it was, but I have an ongoing argument with a friend of mine, who
maitains Chrysler occupies a "unique status" in terms of foreign ownership,
whereby it should be treated as a domestic. I told him he was full of sh1t! I
couldn't resist the openning you gave me. Cheers.
Posted: Fri May 11, 2007 12:08 pm
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Osiris
I would be surprised if being partially owned by a Russian mobster is any worse
than being fully owed by graduates of the Hitler Youth. At least this time we
have more information and know that we are not giong tobe "equal partners in a
merger".
There isn't much positive to say about the being bought by Magna and company.
There is a great deal of negative to say about remaining with Damnliar.
Posted: Fri May 11, 2007 11:56 am
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Nick-DeLeeuw
330i.... it was a rhetorical question, but thanks.
--Nick
www.RightMichigan.com
Posted: Fri May 11, 2007 11:48 am
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paf
330i--"I think Putin is one of the most dangerous men on earth, and is no
friend to the United States."
I couldn't agree more..selling to the Russians sends up alot of red flags!!
Posted: Fri May 11, 2007 11:15 am
<http://cmsimg.detnews.com/apps/pbcsi.dll/bilde?Site=C3&Date=20070511&Category=AUTO01&ArtNo=705110358&Ref=V2Q=100&MaxW=500>
Adrian Wyld / Associated Press
"We in business have to change. Unions have to change. We all have to
change," Magna International Chairman Frank Stronach says Thursday.
Magna: Deal won't derail Chrysler bid
Auto supplier teams up with Russian Machines
Christine Tierney / The Detroit News
TORONTO -- Magna International Inc. Chairman Frank Stronach announced a
cross-border partnership with an automaker Thursday, but it wasn't the deal
shareholders were expecting.
Magna, one of the bidders for DaimlerChrysler AG's Chrysler Group, said it was
teaming up with Russian Machines, part of a conglomerate controlled by Russian
tycoon Oleg Deripaska, to tap into the rapid growth of the Russian auto market.
Stronach, Magna's Austrian-born founder, said he didn't expect the deal to have
any bearing on the auto supplier's bid for Chrysler. "We hope one way or the
other that the Chrysler issue will be solved by then," he told reporters after
Magna's annual shareholders meeting.
Stronach, 74, ignored shareholders' questions about the Chrysler bid at the
meeting. But in a news briefing afterward, he confirmed that Magna had teamed
up with Toronto-based equity firm Onex Corp. to bid for Chrysler, "and the
indications are, Mercedes would like to stay with a small stake." Stronach said
he was open to having perhaps a fourth or fifth firm join the bid.
"We do not want to compete with our customers," he said, addressing concerns
about the impact a tie-up with Chrysler might have on Magna's business with
other car companies.
But he said he wanted to help Chrysler emerge from its difficulties. "We do
hope that we'd be partners and that we could participate," Stronach said.
"That's all we can say at this time. We can't talk about the process itself. We
can't say, 'This is what we'd be prepared to pay.' "
Earlier this week, Stronach told reporters he believed Magna was still a
contender. U.S. private equity firms Cerberus Capital Management and Blackstone
Group also have offered to buy Chrysler, which was put up for sale in February
after losing money in 2006.
Analysts said the deal with Russian Machines, which has offered to take a $1.54
billion stake in Magna, will strengthen Magna's financial profile. It has about
$2 billion in cash, and Stronach has avoided taking on debt since the company's
financial difficulties in the 1990s. "It probably helps them increase their
credibility with commercial banks," Joe Phillippi, president of
New-Jersey-based AutoTrends Consulting Inc., said of the deal.
"It's also a way to get a good-sized piece of the Russian auto parts business,"
Phillippi said. "I think Frank will go anywhere, anytime, on his or the
company's dime to see if can generate some business."
Russian automakers are struggling to reverse a decline in their share of the
Russian car market, which has recently taken off. Through his main business,
Basic Elements, Deripaska owns a stake in Gaz Group, Russia's second-largest
automaker, and he is close to Russian President Vladimir Putin. "I would say
he's the most successful Russian business man," Stronach said. "He owns a car
company, and we've had very good conversations to plan the future."
If anything, the deal is likely to appeal to DaimlerChrysler, Stronach said.
"If I were Mercedes, and Magna would have a Russian partner, I'd be pleased by
that," he said, adding those were his own views. A DaimlerChrysler spokesman
declined to comment.
Under the terms of the deal the Russian firm will pay $1.54 billion to buy 20
million Class A Magna shares. Those shares, as well as super-voting B shares
held by the Stronach Trust that controls Magna, would be put into a new entity
called Newco, which would control about two-thirds of Magna's voting rights.
Stronach retains control through what he called a divorce mechanism that gives
both parties the right to withdraw their shares from Newco.
"On the surface, it seems like a complicated transaction," said Merrill Lynch
analyst John Murphy. "Given that a stand-alone Chrysler will have little
European exposure, a tie-up with Gaz may allow it to enter the European market
with a low-cost manufacturer."
Many analysts say Chrysler's long-term prospects will not improve unless it
reduces its near-total reliance on the North American market, most likely by
forming an alliance with an overseas automaker.
Stronach said Thursday he was concerned about the North American auto industry,
not just Chrysler. He said it needed to adapt to tough competition from Asian
automakers. "We in business have to change," he said. "Unions have to change.
We all have to change."
According to the Toronto Star, Stronach said earlier this week that job cuts at
Chrysler would be inevitable. "Sometimes, when you're sick, you've got to take
some drastic measures. And that's unfortunate," the Star quoted him as saying.
Speaking briefly with reporters after the annual meeting, Magna President Mark
Hogan, a former General Motors Corp. executive, said Chrysler's difficulties
weren't insurmountable. "We know their problems, and they are fixable," he said.
Chrysler is one of Magna's most important customers, and DaimlerChrysler
accounts for about a quarter of Magna's revenues, which totaled $24.2 billion
in 2006. The two companies have a close relationship, with Magna producing
entire vehicles for Chrysler.
You can reach Christine Tierney at (313) 222-1462 or [EMAIL PROTECTED]
