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January 20, 2009 1:36 PM

Schulte, S&C on Chrysler-Fiat Deal

Posted by Zach Lowe

Chrysler's woes have kept dealmakers at Schulte, Roth & Zabel busy the last few months, as the ailing auto giant's parent company, the private equity fund Cerberus Capital Management, has called upon its longtime outside firm for advice on merger talks with General Motors and other issues. 

Today, Chrysler has finally found a partner in the Italian automaker Fiat, which will acquire a 35 percent stake in the company and give Chrysler immediate access to Fiat's production techniques (read: smaller cars) and market penetration in Latin America and elsewhere. Fiat, founded by the famous Agnelli family, is known for luxury brands such as Alfa Romeo and the more practical Cinquecento, a small car meant for cramped city roads.

Fiat is not paying any cash in the deal, and it may acquire a greater stake in Chrysler in the coming months--possibly a majority stake, the Wall Street Journal reports.

Sullivan & Cromwell represented Fiat in the deal. Scott Miller, the lead partner involved, says his work is far from over. Chrysler hopes to leverage the deal--and the potential it holds for increased profits--to convince lenders to restructure its debt obligations and other liabilities, Miller says. That's something Chrysler must do under its bailout agreement with the federal government, which has already lent Chrysler $4 billion. Chrysler has requested $3 billion more, but the government needs to see progress by March before it grants that money. 

Other details need to be hammered out, including how much of a stake Cerberus and minority shareholder Daimler AG will cede to Fiat, Miller says. (As you'll recall, Cerberus purchased Chrysler from Daimler in 2007 for about $7 billion, a full $30 billion less than Daimler paid for the company in 1998. Yes, it's been a bad decade for U.S. automakers.)

Miller, a partner in S&C's Palo Alto office, has represented Fiat since Sergio Marchionne took over as Fiat's chief executive in 2004, he says. Marchionne has a long-standing relationship with Miller and S&C dating to previous ventures, including a series of mergers involving Algroup, an aluminum business in Switzerland where Marchionne once served as CEO, Miller says.  Miller also advised Fiat when the company terminated its alliance with GM in 2005.

Richard Presutti, Robert Keisel, and Alan Waldenberg were the lead Schulte partners on the deal. Presutti declined comment.

Under the terms of the deal, Chrysler will also help Fiat sell cars in the U.S., marking the first time Fiat will sell here since the mid-1980s, the companies said. The United Auto Workers also came out in support of the deal, Bloomberg reports.

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Schulte doesn't have the heft or expertise for a deal like this, but cerberus's GC is an ex-schulte partner.

Funny, they seemed to have have the expertise and heft to work on virtually every other Cerberus deal over the past 15+ years (which is longer than the time the GC/COO has been at Cerberus).

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