Daimler AG has agreed to put a total of $600 million into Chrysler LLC’s pension fund during the next three years, under an agreement reached yesterday with Cerberus, the company that bought Chrysler from it, and the U.S. Pension Benefit Guaranty Corporation. It also is giving its remaining 19.9% stake in Chrysler back to Cerebus. Cerberus has previously agreed to give its shares in Chrysler to the U.S. government as part of the proposed restructuring.
The settlement apparently ends the threat of large and expensive lawsuit against Daimler by Cerberus and Chrysler, and eliminates another obstacle in the restructuring of Chrysler that must be completed this week under a U.S. Treasury Department deadline. Bondholders remain the last major roadblock to finishing a restructuring of Chrysler.
The term sheet signed Monday covers any and all issues still pending between the parties in connection with Chrysler, Daimler officials said in a terse statement issued from the company’s headquarters in Stuttgart.
Daimler will also forgive repayment of the more than $2 billion in loans extended to Chrysler, which were already written off in the 2008 financial statements. Daimler has agreed to pay $200 million into Chrysler’s pension plans on the date of the execution of definitive agreements and in each of the next two years. Earlier this month, Daimler officials pegged their potential remaining liabilities at more than $1 billion before any litigation.
“Chrysler and Cerberus also waive any claims that might arise from representations and warranties made in the transaction of August 3, 2007, including the accusations made against Daimler in 2008 that Daimler, allegedly, improperly managed certain issues in the period between the signing of the agreement and the conclusion of the transaction,” the statement said. “This also applies to the accusation that incomplete information was provided on the transaction.”
“Following the transfer of the term sheet into the final definitive agreements, the relationship between Daimler and Chrysler will solely consist of supplier-customer relations, including limited support for certain dealer financing until the end of September 2009, as well as certain guaranties,” the statement said. The expensive settlement comes while Daimler’s cash reserves have dropped to roughly $4 billion, according to financial information released by the struggling German automaker.
The impact of the settlement will also be reflected in the company’s quarterly financial report as a $700 million charge against earnings. The loans to Chrysler had been written off earlier.