Thursday, May 17, 2007
DaimlerChrysler AG, is a German company, and though it is listed on the New York Stock Exchange it is governed by more-relaxed SEC rules governing "foreign private issuers". We are seeing the difference these rules make with respect to Daimler's disclosures concerning the Chrysler sale to Cerberus announced earlier this week. Had Daimler been a domestic U.S. company, Daimler would have been required to file the Chrysler sale agreement, and any material related agreements, within two business days of its execution. Instead, since Daimler is a foreign private issuer it only needs to disclose this agreement to the SEC if it is required to provide the agreement to its home country regulator. This doesn't appear to be the case here, so we have been left in the dark as to the exact closing conditions and risk for the Chrysler sale. This has been compounded by Daimler's refusal to fully disclose information concerning the sale and the drip-out approach to information it has produced. Here are a few examples:
1. Union Condition. It would not be until a conference call on Monday that Dieter Zetsche, CEO of DaimlerChrysler would state that “[t]his deal is not conditional on any aspects of collective bargaining.”
2. Financing. It would not be until Tuesday that a few details of Cerberus's financing package would be leaked. A group of five banks has committed more than $60 billion in financing; approximately $50 billion will be used for refinancing and $12 billion will be available as an undrawn credit line to operate Chrysler's business.
3. Pension. It would not be until Wednesday that the head of the United Auto Workers, Ron Gettelfinger, would disclose that "Cerberus has committed to contributing an additional $200 million to the pension fund and Daimler is providing a conditional guarantee of $1 billion for up to five years". Daimler had previously refused to comment on this matter but reports have stated that the pension is overfunded.
This information gap and the haphazard way information is coming out concerning the sale leaves open a number of important questions including: What exactly are closing conditions to the deal? Where is Cerberus getting the five billion in new Chrysler equity and how much of it is in committed financing? What exactly are any other continuing obligations of Daimler with respect to the transaction? Why are Daimler and Cerberus shoring up Chrysler's pension plan? On what basis is Chrysler's pension over-funded (is it on a PBO or ABO accounting basis)? And does Daimler expect the scrutiny of the Pension Benefits Guaranty Board of the transaction, and if so, is there a likelihood it could require additional contributions to Chrysler's pension fund (see my post on this here)? Inquiring minds want to know.
Update: The PBGC issued a statement today on its talks with Chrysler and Cerberus. The Interim PBGC director stated:
Daimler has agreed to provide a guarantee of $1 billion to be paid into the Chrysler plans if the plans terminate within five years. Under its new ownership capitalized by Cerberus, Chrysler will make $200 million in pension contributions over the next five years above and beyond the legally required minimum.
From the statement, it appears that on this basis the PBGC will not raise any further issues with the transaction.