Cerberus may be positioning itself to sue Daimler for unfair business practices. They could do so– after filing for Chapter 11 bankruptcy protection– under a claim of "fraudulent conveyance." Rather than turn this into a boring law seminar– and God knows I'm an expert on that front– let's just say that the provision in question (or not) is part of the U.S. bankruptcy code designed to stop management from hiding capital from creditors. Here's the twist: Cerberus could use fraudulent conveyance to claim that the Germans cooked the books, sneakily selling them a business they knew wasn't "a going concern." While Cerberus wouldn't get a full refund, every little bit helps AND it would be a genuine PR coup, protecting Cerberus' rep (tricky German bastards). There are a couple of caveats. First, that small matter of filing for bankruptcy. Second, Daimler could be protected by a statute of limitations, whose term depends on which country's laws govern the terms of the original sale. I'm still checking, but it appears that it's a U.S. deal, giving Cerberus a year from the transaction's conclusion to file and bite Daimler's ass. Hang on; this could get seriously weird.
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If they’re going to go that route, shouldn’t there also be a fall guy at Cerberus? You know, the guy who told the bigwigs that purchasing Chrysler was a great idea?
When did Chapter 11 enter the picture?
When did it ever leave the picture? What picture are you lookin at?
quasimondo: I think the basis of any lawsuit would be that a knowledgeable individual could not rely on the public financial reporting provided by Daimler-Chrysler. Cerberus would probably have recourse against both Daimler and the auditor of record if that were proven in federal court. The SEC regulates financial reporting for public entities, and those reports (quarterly and annual) are necessary for the credit markets to allow moneylending institutions to make an educated assessment about the liquidity of a business, and its prospective cash flows, at a given point in time. If this rumor is true, then Cerberus is prepared to assert that GAAP was not followed by the company, and therefore its financial reporting was misleading. Therefore, no one could be reasonably expected to make an educated assessment of the liquidity of the company at the time of purchase.
When did Chapter 11 enter the picture?
The day the German man bit the American dog.
I think the basis of any lawsuit would be that a knowledgeable individual could not rely on the public financial reporting provided by Daimler-Chrysler.
I suspect that Cerberus would have a very hard time winning this. They didn’t rely strictly on publicly available information, but had access to much more information during the deal’s due diligence period.
Cerberus is a highly sophisticated investor and they are going to have a hard time convincing a judge or jury that they were unfairly taken advantage of by the big bad Daimler bully. Cerberus are known as a bunch of sharp-elbow guys themselves.
The only thing this kind of lawsuit does is to perhaps put a little window dressing over the fact that the self-anointed Financial Geniuses may well have blown it completely. Hubris. Gets ’em every time.
@jthorner:
I had the misfortune to drive a rental 300m and a rental Neon years ago. They were exactly the types of mediocre crapmobiles the Big 3 had been forcing onto US customers for decades. Until those customers just wouldn’t buy them anymore. Believe me, without Mercedes the situation would have been at least as bad.
Laying the blame on Mercedes may be comforting, it’s still delusional.
@blisterinthesun:
Don’t forget that they don’t need to prove what anyone knew or when they knew it. For constructive fraudulent conveyance, no showing of intent is necessary.
Cerberus has to prove harm and Daimler still owning 20% of Chrysler may make that hard to show. Chrysler pre-Daimler was a well run going concern until it was ravaged by the Germans. Read Taken for a ride: How Daimler-Benz drove off with Chrysler to see how this nightmare began. The book doesn’t cover much of the post merger but it shows the marriage got off to a rocky start.
@JB
Roger that.
@JT
I see your point, but having witnessed due diligence in action during an acquisition of one of my clients in the medical devices field, I got the impression that there were areas that weren’t touched, and instead the transaction specialists hired by the acquiring party reviewed our audit work papers at a fairly high level to get a sense of the completeness of the reviews we conducted of the financial statement assertions. I misspoke when I used the term “knowledgeable” only in the sense that we are not talking about the need for an accredited investor to invoke federal “blue sky” requirements for the sale of securities, and in the United States the sale of securities by any public entity is the immediate purview of the SEC. That is why, with all respect, I still see this as a financial reporting issue.
Al Bundy’s bigger idiot theory seems applicable; selling something so dumb only a bigger idiot will buy it. Eventually you get to the head idiot.
To win a damage award Cerberus may have to prove it is the head idiot! Its due diligence may have been deficient, and it bought a business it does not clearly understand and is ill-equipped to manage.
@ Justin Berkowitz: Is this rumor based on anything other than a “What if?” scenario? Are people talking?
” … and in the United States the sale of securities by any public entity is the immediate purview of the SEC. That is why, with all respect, I still see this as a financial reporting issue.”
Spin it how you like, but I would bet a lot of money that Cerberus’ chances of winning any such action are nil.
There is only one reason cerberus would sue daimler. They need to go into chapter 11 to stop the losses and end the bad situation. The suit would be a side show to resurrect their now tattered image as rainmakers. Do you think that cerberus thought they would be in a perfect storm after their last years coup of taking over GMAC, only to get caught in the morgage mess. Remember, they didn’t put that much up front to buy the Chrysler thing, and the real money will be needed to salvage Chrysler. If they feel they canot dupe someone else into putting up that R&D money, then they will bail out. Daimler had everything to lose with 36 billion invested in Chrysler in doing the cerberus deal. However, when they thought good money after bad was not in the cards they bailed for essentially getting rid of the liability. Remember at the end of the deal they daimler had to leave more money on the table just to get cerberus to take Chrysler. This was a the final result of having too much American car building capacity for our now mature market. Daimler misjudged it and now cerberus. It is now survival of the fitest in the US and Chrysler is the least fit of the American builders.
Ya know…they might as well sue. Don’t really have anything to loose at this point, lol.
The problem is, IIRC, Cerberus didn’t so much buy Chrysler as Daimler paid them to take it off their hands.
***Standard IANAL disclaimer***
If a lawsuit was filed, could it just be a “give us some money to go away” suit, since it’s not clear that Cerberus could win it? After all, two well-heeled companies can afford a lot of litigation, but after a while the billable hours start to add up, not to mention that Cerberus doesn’t really have to worry about its good name, but Daimler has to worry about Mercedes having a bad image.
jthorner,
I would guess that the odds of winning a lawsuit would be poor as well especially if Daimler was even the least bit careful. Due diligence is not nearly the open book process it sounds. I’ve been through enough of these on both sides to know you carefully select, filter and review everything you provide. Daimler should have stamped “unaudited” or “draft” on every current non-public info they provided.
“I’ve been through enough of these on both sides to know you carefully select, filter and review everything you provide. ”
I’ve been through a few as well and I understand your point. Often the lack of thoroughness is due to impatience on both sides of the deal to “get ‘er done”. I still don’t think Cerberus has much of a chance of prevailing in any court action. Nothing that is going on a Chrysler right now looks like it is the result of deep dark secrets which were hidden from the buyer.
Now Cerberus knows how many Chrysler customers feel: “Wow, this thing isn’t quite the great deal I thought I was getting!” Just wait till they try to trade up in 3 years … yihaha.