Daimler and Cerberus Prepare For Battle

The latest skirmish is ostensibly over the price tag to be placed on Daimler’s remaining ownership share of Chrysler, but what we are really seeing are early salvos in the “you ripped us off” lawsuit Cerberus is destined to file against Daimler. Daimler put out a terse press release this morning saying: “The negotiations between Daimler AG and Cerberus Capital Management LLC on the redemption of Daimler’s 19.9% shareholding in Chrysler Holding LLC (“Chrysler”) and other issues related to Cerberus’s investment in Chrysler have been made considerably more difficult during the last weeks due to exaggerated demands by Cerberus. These demands by Cerberus exceed the value of Cerberus’ investment in Chrysler. For the acquisition of an 80.1% stake in Chrysler, Cerberus had invested USD 7.2 bn. The claims made now go beyond the framework of the contractually agreed possible obligations under representations and warranties. The new claims also include an allegation of conduct outside the ordinary course of business by Daimler during the time between signing and closing of the transaction as well as the allegation of incomplete information about the business. Daimler rejects these absurd allegations and the claims derived there from as being completely without substance.”Reading between the lines, it sounds like not only is Cerberus is demanding that Daimler’s remaining ownership interest be handed over gratis, but also for Daimler to pony up cash in excess of Cerberus’ original investment. “Representations and warranties” is the section of a contract wherein each side declares that it is telling the truth, the whole truth and nothing but the truth … sort of. That “possible obligations” phrase refers to limitations of compensation to be paid in the event something not truthful or complete later comes to light. The “allegation of conduct … between signing and closing” zinger means that Cerberus is accusing Daimler of stealing significant assets from Chrysler during the period of time between the contract signing and the actual turn over. Kind of like ripping out the kitchen sink after selling your house, but before turning over the keys. Zoinks! Cerberus is angling for a way around the limitations of the reps and warranties section. Nearly a year ago, Justin foretold a Cerberus lawsuit against Daimler, and he is looking very smart right now.You have to feel just a little sorry for Daimler. The Germans paid $300 million in 2003 to settle a lawsuit by Kerkorian & Friends which alleged that Daimler used fraud to underpay for Chrysler back in 1998. After losing most of its investment in Chrysler, Daimler is once again facing the legal dogs of war over how it gave the company away. The US may be losing its grip on running car companies, but we sure know how to keep the lawyers busy.