bloggingbuyouts

In a recent letter from Cerberus Capital Management to its investors, the private equity giant admitted that it has "significant concerns" about the health of GMAC, the one-time finance arm of General Motors Corp. (NYSE: GM). In 2006, Cerberus bought 51% of GMAC.

The letter states that "If the credit markets continue to decline and we find ourselves in a prolonged environment of capital market shutdown, GMAC could run into substantial difficulty." On the other hand, Cerberus argues that it bought GMAC so cheaply that it should be able to survive.

I first noticed the story on the excellent finance and macroeconomics blog Calculated Risk, which has posted an excerpt from the letter. The whole letter can be downloaded at Deal Journal, which also discusses the contents of the letter. Interestingly, Cerberus has replied to the post at Deal Journal, saying that "Although we prepare for the worst case scenario, it doesn't mean that it will certainly happen" and that "We also believe that GMAC is a resilient business platform and a survivor with strong long term prospects."

I guess Cerberus didn't want to leave the impression that it was panicked by the state of the credit markets. But somehow I doubt that their denials tell the whole story.

After some nervous moments in the last three weeks, representatives of the United Automobile Workers (UAW) union agreed to a new four-year labor contract with Chrysler, now owned by private capital group Cerberus Capital. The deal guarantees future work to much of Chrysler's workforce and hopefully puts to rest the October 10th six-hour walkout that's still fresh on the UAW's mind.

In reaching an agreement with Chrysler, the largest automotive union now can look forward to negotiating a deal with Ford Motor Co. (NYSE: F), as deals with General Motors (NYSE: GM) and Chrysler are now complete and in the books. The agreed-upon contract with Chrysler finally gained support at the plants that mattered, including the four larger Detroit-area car factories. Although some of the voting plants, such as a plant in Belvidere, Illinois, still had issues with the contract, the majority votes were enough to give it ratification as of late this weekend.

According to the UAW, roughly 56% of hourly workers and 51% of skilled trades workers approved the agreement as of this past Saturday evening. That's not a huge sweep of approval, but it was enough to put the negotiations to bed for the next four years.

At least for the next four years, Chrysler's union employees will have some sense of security as the automaker struggles to return to consistent positive performance under the ownership of a private set of investors. With Ford up next -- and obviously feeling pressure to mold a new agreement in the vein of the recent GM and Chrysler contracts -- the UAW still has its greatest test ahead.

Perhaps there are not enough good opportunities to "cherry pick" assets among U.S. mortgage lenders, so U.S. buyout firms Cerberus and JC Flowers have gotten approval to deal with the board of Northern Rock (LSE: NRK), the large and troubled U.K. mortgage bank.

The two funds would probably take different approaches. Flowers is interested in having Northern Rock continue to operate, but perhaps with many fewer employees. Cerberus is interest in the bank's assets, which it believes it can get at a discount and then sell off to other institutions.

According to The Telegraph, British authorities "have said Northern Rock is solvent, but sources close to the restructuring warn that it is living on borrowed time."

A buyout of Northern Rock could be a trial for whether similar deals could work in the U.S. There is little hope that the U.S. mortgage market will be better this year and may even stay depressed into 2008. Banks like Accredited Home Lenders (NASDAQ: LEND) are still not out of the woods. And, private equity and hedge fund interests may be the only buyers left for some of these companies.

Douglas A. McIntyre is a partner at 24/7 Wall St.

Given all the controversy that Robert Nardelli's tenure at Home Depot (NYSE: HD) generated, and the much-maligned $210 million severance package he collected, there's a lot of confusion about why he was chosen to head the Cerberus Capital's newly-private Chrysler.

As Jonathan Berr wrote earlier, "he has no experience in the auto industry. Moreover, he was a horrible CEO at Home Depot whose arrogance was matched by a lack of operational skills. The Atlanta-based retailer is in the process of selling off its HD Supply Division, which Nardelli built, to private equity group lead by Bain Capital for $10.3 billion. Home Depot also lost market share to Lowes Cos. (NYSE: LOW) and saw its stock price fall about 8% under Nardelli's leadership."

The consensus seems to be that Nardelli was chosen because of his expertise in turnarounds. But will the arrogance that led to a major falling out with shareholders and a disastrous annual meeting also create problems in crucial negotiations with the United Auto Workers?

Maybe that challenge is what's motivating Nardelli. He's already richer than anyone could ever need to be. But the conventional wisdom on him is that he's a strong operational guy, but lacks strong people skills. Nardelli's a pretty determined guy, and if he can turn the determination that led to trouble with shareholders into something positive, he just might be the guy for Chrysler.

United Rentals (NYSE: URI) has agreed to be acquired by Cerberus Capital for $34.50 per share in cash, a relatively small premium to the company's closing price of $32.37 on Friday. As recently as two weeks ago, the shares traded higher than the buyout price. Of course, United Rentals put a predictably favorable spin on the deal in a press release, stating that "The purchase price per share represents a 25% premium over United Rentals' closing share price of $27.55 prior to the company's announcement on April 10, 2007 that it had commenced a process to explore a broad range of strategic alternatives."

United Rentals is an equipment rental company with 690 rental locations in 48 states,10 Canadian provinces and Mexico, and has over 12,000 employees.

If you think that rental companies are a good fit for private equity firms and that competitors will see interest from buyout shops, you may want to look at Ryder (NYSE: R), which trades at a pretty similar valuation to United Rentals.

Since the early 1990s, the private equity firm Texas Pacific Group has built a great reputation with turnarounds. One marquee deal was Continental Airlines (NYSE: CAL). TPG has also been quite savvy with high-tech targets. For example, the firm is in the process of buying Avaya Inc. (NYSE: AV).

But it's not a complete cake-walk for TPG. Take a look at the firm's $560 million deal to buyout consumer electronics company JVC. The issue? Well, lenders are backing off. After all, interest rates have been rising.

What's more, JVC is still deteriorating. It is in a tough marketplace and must compete against biggies like Sony Corporation (ADR) (NYSE: SNE).

Even so, a deal still may get done -- but not necessarily with TPG. Rumor has it that Cerberus Capital may may be interested in JVC too.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.

BCE, the largest telecom company in Canada, has been the target of lots of buyout rumors lately. According to a piece in ReportOnBusiness.com, it looks like Cerberus wants to make a play for the company as well.

Yes, Cerberus has a lot on its plate right now. After all, it's in the process of buying out Chrysler from DaimlerChrysler (NYSE: DCX).

As for BCE, it's the kind of company private equity firms like. There's lots of cash flow, a valuable brand and barriers to entry.

One issue is that Cerberus will need to find some financial partners to meet shareholder rules for foreign ownerships. The talk is that they include Shaw Communications and CanWest Global Communications.

Another issue: There could be a bidding war, and that's something private equity firms try to avoid. Keep in mind that Cerberus is known for being pretty tough when it comes to pricing deals.

Some other possible bidders include the Canada Pension Plan Investment Board and KKR.

If the deal gets done, it'll be a doozy. The price tag could exceed $28 billion.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.

With the U.S. auto industry recently having been in the throes of death (but slowly recovering), the deal announced between DaimlerChrysler (NYSE:DCX) and Cerberus sounds like some kind of white flag event in the short century-old automobile industry. Why? Because had to pay someone to take the Chrysler division off its hands. That has to smart, since it was not even 10 years ago that Daimler thought buying Chrysler was a pretty shrewd $37 billion move. Oh well.

Not only that, Daimler spent quite a bit of pocket change trying to see the day when Chrysler could hold its own. It never happened, and as such, a little over 80% of the company will shift to being owned by Cerberus Capital Management after Daimler agreed to send off almost $680 million to rid its hands of the whole Chrysler division. This kind of smacks as one of the biggest attempted turnaround flops ever -- and it also gives Cerberus control over the future of Chrysler after the firm puts up about $7.4 billion to keep Chrysler's capital flow going.

With Chrysler about to be under private leadership and control (along with Daimler trying to rebuild itself with this divestiture), what is in store for the company? A renewed focus on products that customers will buy (I hope) along with alleviating the pressures of being a public company that must answer to those horrendous quarterly estimates, or see share price sinking soon afterward. So, now that Chrysler is off the block and into the hands of private equity, who's next? Just kidding. This soon won't be repeated. That is unless Microsoft buys Ford to create the Windows Vista Automobile (WVA). Again, just kidding.