Cerberus shows interest in buying Jaguar and Land Rover from Ford
17-Jun-2007 • Bond News
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Cerberus Capital Management could be coming around for another bite of the automotive apple, creating the potential for the organization of a new auto company, which would include more than just Chrysler - reports Car Connection.
The Financial Times reported Cerberus is emerging as a potential bidder for Jaguar and Land Rover. Nobody from Cerberus is saying anything. Ford, however, has confirmed putting Jaguar and Land Rover up for sale. Another potential bidder for Jaguar and Land Rover identified by the Times was a private equity fund headed by former Ford CEO Jac Nasser.
Nasser also was mentioned last year as a potential bidder for Aston Martin when Ford put it on the auction block. However, James Bond's favorite auto maker was ultimately sold for $925 million to a consortium comprised of David Richards, John Sinders, Investment Dar and Adeem Investment Co.
Nevertheless, the prospects of a bidding war for the Jaguar and Land Rover nameplates must bring some satisfaction to the Ford family, which had hung on to the two properties despite intense pressure to sell. The guessing now among analysts is that Jaguar and Land Rover together might fetch between $5 billion and $6 billion in the ongoing auction, or about five times their estimated value only six months ago.
Private equity funds have created a new market for automotive assets.
The theory behind the interest is the emergence of new vehicle industries in China, India and even Russia is enhancing the value of older American and European automakers, which while they have weak balance sheets, also have well-established dealer networks and marketing organizations.
One common assumption is that companies such Cerberus will eventually re-sell the company to an emerging automaker. Chinese and Indian automakers, with their aggressive cultures, are unlikely to follow the path of Toyota, the Japanese auto giant, which emphasized slow, patient organic growth over more than half a century before emerging as the world's largest automaker.
In addition, while demand for new vehicles is expected to grow gradually in the U.S. and Western Europe, demand for new vehicles is expected to boom in emerging markets where established luxury brands have substantial cachet.
Meanwhile, Cerberus is moving forward with its planned take over of the U.S. -based Chrysler Group from DaimlerChrysler AG, which expects to change its name to DaimlerAG before the end of the year. Various pieces of Cerberus' deal for Chrysler are falling into place, according to Chrysler officials, who are still predicting the deal should close before the end of the third quarter.
Ford, on the other, hand is still struggling to fix its ailing North American automotive business. Ford's overseas operations are basically healthy but the company still needs to make substantial repairs to its North American business, one senior Ford executive said privately last week.
Thus, Ford is looking for major concessions from the United Auto Workers in the upcoming round of contract talks this summer, he said.
Cerberus, which is enormously guarded about its plans, would probably keep the strategy, design and engineering of its British brands separate from its American automotive assets. However, Chrysler could provide Jaguar and Land Rover with the back-office functions and other services needed by an established carmaker.
The potential for bid from Cerberus could create a backlash in Great Britain where American-based private equity firms are viewed with suspicion, according to the Times.
Cerberus' bid for Chrysler also is being viewed as something of a watershed in the United States. The winning bid for Chrysler sharply raised Cerberus' public profile and brought new scrutiny to a company, which has usually tried to avoid public scrutiny in the past.
The U.S. Senate Finance Committee, for example, has begun to evaluate whether private equity groups should begin to pay a higher tax rate.
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