Chrysler deal could be risky for buyout firm

updated 4:02 p.m. ET May 14, 2007

NEW YORK - Cerberus Capital Management LP, a private equity firm named after the three-headed hound that guarded the gates of hell in Greek mythology, is now part of U.S. corporate lore.

The New York-based firm, run by financier Stephen Feinberg, secured a $7.4 billion deal to buy a controlling stake in Chrysler Group. The agreement unwinds the controversial 1998 takeover of the American automaker by Daimler-Benz AG, a deal that set the mark for massive cross-border acquisitions.

Feinberg, armed with about $16 billion of capital, is taking a huge gamble, according to people familiar with the firm. The deal could transform Cerberus into a major force in the automotive industry, especially considering that it owns a 51 percent stake in GMAC Financial Services and is in the midst of a $1 billion takeover of Tower Automotive Inc.

Some analysts believe Feinberg faces a serious challenge given the slumping U.S. auto industry.

More on the Chrysler deal Can a Cerberus deal help out Chrysler? Chrysler Group to be sold for $7.4 billion Deal could be risky for buyout firm Some workers wary of Cerberus deal   Video: Can what's broken be fixed?   Video: Why Cerberus wants to do deal   Video: Automaker now to go private   Video: Private equity to the rescue   Discuss: A good move for both parties?

"Chrysler now has a one-in-five chance of being around 10 years from now, which is still a lot better chance than it had yesterday," said Peter Morici, a professor at the University of Maryland's Robert H. Smith School of Business. "Cerberus might be the only one out there that can do it. They have the management experience, a record of successfully cutting costs, and is willing to bet real money you can make cars in North America successfully."

Morici, and others tracking the deal, point to a "dream team" of sorts that will help increase the odds that Feinberg will turn Chrysler around. Leading the list is John Snow, the former Treasury secretary appointed chairman of Cerberus in October. It also includes former Chrysler chief operating officer Wolfgang Bernhard, who recently joined Cerberus as a senior executive, and David Thursfield, who ran Ford Motor Co.'s operations outside of North and South America and who joined Cerberus in April 2004 as a senior member of its automotive team.

Cerberus was founded in 1992, and has specialized in buying distressed companies and then turning them around through heavy cost-cutting. With some $25 billion of assets under management, the firm owns about 50 companies with combined revenue of more than $60 billion, according to its Web site.

Those companies include a broad swath of industries, including everything from Formica Corp. to Air Canada. In the auto industry, Cerberus owns Guilford Mills, the largest automotive seating supplier in the U.S., and Peguform Group, a German-based manufacturer of interior and exterior plastic parts used in automobiles.

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