Wild Ass Rumor of the Day: Cerberus Sells Chrysler, GMAC
The internets are abuzz with the "revelation" that Chrysler-owner Cerberus has sold off more than half of its investment in the ailing American automaker and lender GMAC to about 90 other investors. The only problem with this story: timing. As Reuters puts it (and The Detroit Free Press neglects to mention) "The timing of those transactions was not clear." IIn other words, it's a non-story. But not completely. For one thing, Cerberus' limited exposure to the two companies makes it easier for them to bail; it explains Cerberus' stated decision not to top-up GMAC with the $600m it needs to stave-off bankruptcy. Second, the story's original source, The Financial Times, paints an unintentionally humorous portrait of unbridled greed. "Most of those joining the GMAC deal in 2006 did not have much time to do their due diligence. Instead, Cerberus invited about 50 hedge funds to its Park Avenue office for a presentation by its chief administrative officer, Seth Plattus. 'It was a 'trust me' kind of trade,' says one investor, who bought a small piece of GMAC. 'You had no time to do real due diligence. But it was a hot deal and everybody wanted in as part of the gang.' Many of the people who took part in the deal were friends of Steve Feinberg, founder of Cerberus, and said they invested as a sign of faith in him… 'There was an element of the greater fool theory to it.'"
UPDATE [via Automotive News] "Cerberus has not sold any equity in Chrysler," said the Chrysler official speaking on condition of anonymity. "There are always co-investors at the time of the transactions so when they originally purchased 80.1 percent of Chrysler, there were co-investors at that time. They still own 80.1 percent."