Daimler without Chrysler faces more takeover risk

By Michael Shields, European Auto Correspondent

FRANKFURT, Feb 26 (Reuters) - Shorn of Chrysler, the rump DaimlerChrysler AG DCXGn.DE group could be more of a takeover target for hedge funds and private equity groups awash with cash, analysts say.

When private equity investors can take out a company even the size of U.S. utility TXU Corp TXU.N for nearly $44 billion including debt, a slimmed-down Daimler separated from loss-making U.S. arm Chrysler no longer seems too big to swallow.

DaimlerChrysler, which has outperformed the DJ European car sector index by 3 percent since it announced this month it was considering all options for Chrysler, has a market capitalisation of nearly 60 billion euros ($79 billion). Banca IMI analyst Sabine Bluemel said a post-Chrysler approach from private equity investors was a realistic scenario.

"Of course, it is manageable, but it really depends on what kind of creature the spinoff of Chrysler will be and the crux is the legacy costs," she said, referring to some 18 billion euros in unfunded pension and healthcare liabilities at Chrysler.

One investment banker who follows the sector closely said the likelihood of an unsolicited approach was still low but had gone up to 20 percent from 10 percent.

A rump Daimler -- comprising Mercedes premium cars, commercial vehicles and financial services -- would probably be able to stay independent as long as it did not have to refinance Chrysler to the tune of several billion euros, he said.

"They are obviously a group that doesn't have a protective shareholder so they can never be complacent," he added, noting a business hiccup could open the door to an unsolicited approach.

"If it skips a beat, if the truck market has a bad impact -- particularly with the U.S. and Freightliner (trucks) -- then potentially it is a more manageable thing for someone to come after them and split off cars and trucks," this banker said.

TAKING A LOOK DaimlerChrysler declined comment on prospects for being acquired if it divests Chrysler, but has said in the past the best defence against takeovers was good financial performance.

One person familiar with the situation said Chief Financial Officer Bodo Uebber had routinely played down suggestions that hedge funds could team up to buy DaimlerChrysler because he felt such a wolfpack would be unable to agree on strategy and goals.

"But should it come to pass that Chrysler is split off from Daimler, then Daimler would be an interesting target," the source said. A complete splitup of the cars, trucks and vans businesses would then be "a real danger".

Falk Frey, senior credit officer in Germany for ratings agency Moody's, pointed out that fear of a takeover was one reason why Daimler-Benz merged with Chrysler in 1998 to form the world's fifth-biggest carmaker.

Synergies between the car and trucks businesses on things such as emissions and safety argued for keeping them yoked.

"I would not speculate that the trucks and the cars will be split up, at least not by (current) management," Frey said.