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Onex, Magna eye bid for Chrysler

Two of Canada's most aggressive and successful businessmen, Gerald Schwartz of Onex Corp. and Frank Stronach of Magna International Inc., are working on a joint bid for all of money-losing auto maker Chrysler, according to people familiar with the sale process.

The rationale behind a Magna-Onex partnership is that Magna could bring its expertise to operating auto factories, while Onex could use its financial finesse to run Chrysler's credit arm, the sources said.

Onex could also bring a labour-friendly private equity face to the table — many unionized workers made big gains in the company's recent purchase of an aerospace company — in a negotiation where making a deal with unions to cut costs will be key.

The price that Magna and Onex would pay is unclear, according to the sources, who requested that their names not be used, though there have been suggestions that seller DaimlerChrysler AG wants to generate at least $8-billion (U.S.) from a sale. Any buyer would also have to find a way to deal with the massive pension and health liabilities that Chrysler will come with, estimated at more than $15-billion.

DaimlerChrysler put the unit up for sale amid shareholder discontent about the continuing losses since the $36-billion merger of Germany's Daimler and Detroit-based Chrysler in 1998.

Chrysler posted an operating loss of $1.5-billion last year after being sideswiped by a sudden and rapid rise in the price of gasoline, which sent sales of the company's pickup trucks and sport utility vehicles skidding.

The only offer that has been made public so far is a $4.5-billion cash offer from billionaire Kirk Kerkorian.

Investment bankers from JPMorgan Chase & Co. are running the sale process, and the sources said private equity firms Blackstone Group LP and Cerberus Capital Management LP are the other leading bidders.

Magna had also been rumoured to be working with a private equity partner, but the identity of the backer had not been revealed.

There had been speculation that Magna, one of the world's largest auto component makers, would not bid for the whole of Chrysler, but would rather aim for a partnership setup where the Canadian company would run plants and try to use its operational expertise to cut costs.

With Onex on side, a play for all of Chrysler becomes a possibility, the sources said. Onex has spent only about half of the $3.45-billion it raised in a private equity fund last year. Onex officials declined to comment on the possibility of a bid for Chrysler.

Magna could borrow as much as $7-billion to fund a bid, according to a recent report by Citigroup analyst Jon Rogers.

“Potential drivers for Magna's interest might include gaining more business from and solidifying its relationship with an important customer,” Mr. Rogers wrote.

Magna has refused to discuss its plans, other than via Mr. Stronach's public comments that Magna must get involved to protect its relationship with the auto maker, which generates about 15 per cent of Magna's annual revenue of $24.2-billion. Magna makes seats, trim parts, and suspension and engine components for virtually every Chrysler vehicle manufactured in North America, and actually builds cars for DaimlerChrysler at a plant in Austria.

A big hurdle will be making a deal with the auto maker's unions. The Canadian Auto Workers union and the United Auto Workers union have expressed their opposition to the sale of Chrysler.

They have also vocally criticized the prospect of a takeover of the company by private equity firms, because of concerns that a buyout firm will try to institute deep cost cuts.

CAW head Buzz Hargrove has met with Mr. Stronach to hear what the union leader called a “sketchy” outline of a Chrysler proposal.

In an interview yesterday, he reiterated that