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."
‘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…
On Wall Street the word friendship is defined differently than it is everywhere else.
Who would start a company and name it “Cerberus” (dog that guards hell), but the devil himself.
Would you trust the devil???
Cerberus has three heads but none was able to spot an oncoming freght train.
Truth be told, Cerberus was the guard to the afterlife, not the guard of Hell.
Greek mythology had Hades as the only place mortals could go when they die. In Christian mythology, it’s where people go to await judgment from God-not necessarily in torment, according to Wikipedia.
I would definitely consider what’s gonna happen to Dodge “the afterlife”. And comparing Mr. Feinberg to the Devil is a bit much. He may have sold his soul to the Devil (Hell if I know) but I would consider Hitler or Saddam Hussein closer to Satan than some overpaid Wall Street broker.
Does anyone know why Daimler owns 19.9% of Chrysler? I thought the company was “worthless” in their eyes? It seems to me they want something from them.
81.1%, 19.9%, these are accounting driven numbers. 20% or more means you use equity method, unless you demonstrate you have no significant influence over the investee. Significant influence means what it sounds like. You speak, they listen and seriously consider your wishes, maybe they have to arrange votes around you if need be.
Equity method means you record your proportionate share of income/losses. This is bad because you have income volatility and well, losses in this case.
Next step down accounting decision tree, absent influence, you record investment at cost, then merely record regular dividends as income, if ever. This must be what they are doing.
So they game it by keeping 0.1% under 20%. Its deliberate bad accounting, surprised their auditors let them get away with it. Imagine, Cerberus has no significant influence over Chrysler.
Yeah right.
I sure would like to read more negative Chrysler ‘news.’
Please oblige with tomorrows WARotD.