I worked on a deal with Cerberus and posted about their
acquisition of Chysler and wondered what
incongruity they had discovered. Well it was not their
best deal however they did not lose.
If you do a Google search for Cerberus and Chrysler, your top
result will be a Forbes story whose header is: “A firm notorious
for its secrecy gets a very public black eye.”
My guess is that might soon change a bit...
Cerberus this morning announced that it has agreed to sell
Chrysler Financial to TD Bank for $6.3 billion. From a return
perspective, this means that Cerberus actually is nearing
break-even on its original investment. Here’s how it works out:
Cerberus led a $7.4 billion acquisition of Chrysler from Daimler
in 2007, which included both Chrysler’s auto-making and auto-finance
units. The private equity firm’s actual investment was $1.3 billion, with
the remainder coming from co-investors and lenders. For context,
it was the firm’s largest-ever check.
Chrysler’s auto-making unit went bust last year, with Cerberus
contributing its equity to the government-backed bankruptcy.
But Cerberus held on to Chrysler Finance, which has since
benefited from such macro as increases in car resale values
(CRVs). Now it’s selling the unit to TD Bank for $6.3 billion in cash.
That would still put the overall buyout underwater by $1.1 billion,
except that Cerberus actually isn’t selling all of Chrysler Financial.
Instead, it’s holding onto select assets – including a unit set up to
do foreclosures and one related to insurance (seems TD wanted
to get the deal done fast, rather than wait to figure out additional
dispositions). My understanding is that Cerberus values those
excluded assets at approximately $940 million.
As such, the total cash-on-cash loss appears to be less than
1% of the deal's original value. Still a lousy deal, to be sure,
but not anything close to the disaster that most folks had
assumed it to be…