Cerberus on the Move

Hellhound Snaps Up Chrysler

Almost entirely unnoticed, Cerberus has become one of the most powerful actors in the multi-billion dollar market for corporate takeovers. The financial investor catapulted itself into a new dimension with the takeover of Chrysler.


Monday, 5/14/2007   06:33 PM

The name says it all: Cerberus, the three-headed hellhound that, according to Greek mythology, guards the gate to the Underworld, is what Stephen Feinberg calls his investment management firm. And, the 47-year-old investor has proven often enough over the past years that the name suits the company, which he founded in New York in 1992. Over the past 15 years, the venture capital firm has developed into one of the largest financial institutions in the world, currently managing more the $20 billion and owning companies totalling over $60 billion in worth.

Feinberg has specialized in a line of business that up to now other financial institutions have wanted little to do with. Venture capital firms like Cerberus invest in or purchase other companies that are about to go bankrupt. After buying them, they either take control as the largest creditor, rationalize the business and re-sell it –- or, they carve it up into pieces. Originally, Cerberus primarily bought the debt of bankruptcy candidates from their creditors. Since then, the portfolio has expanded to all kinds of problem-ridden assets. Firms like Cerberus have earned the nickname of "vulture funds."

In recent years, the auto industry –- just like the financial and real estate sectors –- has become a focus of Cerberus: The purchase of Chrysler was hardly a surprise. In the US, Cerberus bought the financing unit of automaker General Motors in 2006, and the firm also owns a small auto parts supplier and car rental company called Vanguard Car Rental, which owns the brands "National" and "Alamo." A few years ago, the investor acquired the German auto parts supplier Peguform and saved it from insolvency, mostly through massive layoffs.

Abrasive and imperious manner

Cerberus has been active in Germany since 2003 -- and since then there's been hardly a transaction where the financial investment company hasn't been named as a potential buyer. Among others, the airplane leasing firm Debis Air Finance, the Berlin housing society GSW, the plasma line from Bayer Research Triangle Park, and the private trade credit bank HKB belong to the Cerberus portfolio. The company also recently bid for Austria's only trade union bank, Bawag.

The media-shy company made headlines in 2005, when negotiations for the purchase of Cologne-based insurance company Gerling lasted several months. The deal failed in the end, not least because of the company's abrasive and imperious manner. The last word in negotiations belongs to Cerberus founder Feinberg, who is known in the finance world for rarely allowing decision-making powers to local management. He also tends to renegotiate agreements that have already been reached.

Nevertheless, he carefully selects his colleagues, often choosing former CEO's and politicians. With the help of these experts, also known as 'scouts,' Feinberg sounds out which businesses could be lucrative. These figurative pathfinders also aid in controlling acquisitions. It's no coincidence that former VW and DaimlerChrysler CEO Wolfgang Bernhard belongs to the Cerberus consultants. He knows the company better than anyone. He was chosen to restructure the ailing company in 2000, along with DaimlerChrysler head Dieter Zetsche. According to news reports, Bernhard is joined on the team by Robert Rewey, a former Ford marketing manager, and JD Power, one of the Automobile industry's specialized consulting companies. Also on the roster is Gary Dilts, former leader of the Chrysler sales team.

Not locusts

Team jerseys have also gone to former US Finance Minister John Snow, who serves as chairman of Cerberus, and former Vice President Dan Quayle, a board member. In Germany, former defense secretary Rudolf Scharping is said to advise the company as well.

In contrast to public opinion, the Cerberus managers don't think of themselves as hedge funds or locusts. The company takes ailing companies under their wing and strengthens their ability to compete with capital and expertise, John Snow said at a presentation in Vienna in November. They are patient, and can therefore implement long-term plans, Snow said.

Whether this goes for Chrysler too, remains to be seen in the coming weeks and months.

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