Chrysler Regains Daimler’s 19.9 Percent Stake, Reaches Agreement With Lenders

Daimler AG, parent company of German automaker Mercedes-Benz, has reportedly come to an agreement with Chrysler parent Cerberus to release its remaining 19.9 percent stake in the American manufacturer.

Daimler has agreed to inject US$200 million each year into Chrysler’s retiree healthcare funds, through to August 2012.

The deal will also see Daimler write-off the US$1.5 billion loan made to Chrysler in 2007, allowing the embattled manufacturer to take a stronger position in its pursuit of an alliance with Fiat, with a US government-imposed deadline of April 30.

Further good tidings has come through for Chrysler, with the United Automotive Workers union agreeing to halve the US$10.6 billion debt owed to its retiree healthcare fund by Chrysler, in exchange for a 55 percent stake in the company.

The deal will give see the UAW gain a seat on Chrysler’s Board of Directors.

Daimler reaches agreement on separation from Chrysler

Agreement with US Pension Benefit Guaranty Corporation (PBGC), Chrysler and Cerberus on pending issues

Redemption of remaining 19.9% shareholding

Daimler AG (stock-exchange abbreviation DAI), Chrysler, Cerberus and the US Pension Benefit Guaranty Corporation (PBGC) signed a binding term sheet on April 27, 2009 covering issues still pending between the parties in connection with Chrysler.

Under this agreement, Daimler's remaining 19.9% shareholding in Chrysler will be redeemed and Daimler will forgive repayment of the loans extended to Chrysler, which were already written off in the 2008 financial statements.

In addition, Daimler has agreed to pay US $200 million into Chrysler's pension plans on the date of the execution of definitive agreements and in each of the next two years. In this way, Daimler is helping to secure pension payments to former employees of DaimlerChrysler. The existing pension guaranty of US $1 billion vis-Ã -vis the PBGC will be reduced to an amount of US $200 million and will remain in place until August 2012.

Chrysler and Cerberus waive any claims that might arise from representations and warranties made in the transaction of August 3, 2007, including the accusations made against Daimler in 2008 that Daimler allegedly improperly managed certain issues in the period between the signing of the agreement and the conclusion of the transaction. This also applies to the accusation that incomplete information was provided on the transaction.

Following the transfer of the term sheet into the final definitive agreements, the relationship between Daimler and Chrysler will solely consist of supplier-customer relations, including limited support for certain dealer financing until the end of September 2009, as well as certain guaranties.

The effect on EBIT resulting from this agreement, which will be reflected in Daimler's financial statements for the second quarter of 2009, is estimated at up to US $0.7 billion. The payments to be made in the years 2009 through 2011 amount to US $200 million per annum.