Daimler sells two engine-making businesses

[Marc]

From the IHT

DaimlerChrysler, the carmaker, agreed Wednesday to sell two engine-making businesses to EQT Partners, a private equity group, for E1.6 billion to pay for 8,500 job cuts at its Mercedes-Benz division.

The sale of the MTU Friedrichshafen division and a unit of Detroit Diesel, a deal worth $1.9 billion, will help bolster net income by E300 million, DaimlerChrysler said in a statement.

Since 2001 DaimlerChrysler has disposed of several businesses, including the trainmaker Adtranz and MTU Aero Engines, to improve profit and meet challenges from Bayerische Motoren Werke and Toyota Motor. BMW overtook Mercedes-Benz as the world's largest luxury carmaker in the first quarter. DaimlerChrysler's 11-month European market share held steady while Toyota and its Lexus unit raised their share.

"The fact that the deal now is finally negotiated is good news, as management can now focus on core activities," Robert Heberger, an analyst at Merck Finck in Munich, wrote to clients.

Shares of DaimlerChrysler rose 69 euro cents to trade at E43.32 at midday in Frankfurt. The stock has risen almost 23 percent this year, valuing the carmaker at E43.9 billion.

EQT plans to support MTU Friedrichshafen's plans to expand outside Germany, and firm will appoint a supervisory board of "experienced industrialists" to discuss new markets and products, said Marcus Brennecke, managing partner of EQT's German business.

The Detroit Diesel operation, which makes equipment for agriculture, mining and naval industries, will be combined with MTU Friedrichshafen under a single management, Brennecke said. "They have been working together very closely already, so it's just a strengthening of the whole off-highway part."

The sale follows months of negotiations with former minority shareholders of MTU as well as with bidders that included MAN and a group led by Kohlberg Kravis Roberts and Dubai International Capital. DaimlerChrysler reached an agreement in September to buy a combined 10 percent of MTU from the Brandenstein-Zeppelin and Schmid-Maybach families to eliminate the risk that they would veto the sale.

"From a strategic point of view, this sale allows them to narrow the spotlight on being a maker of premium cars," said Stephen Pope, an analyst at Cantor Fitzgerald in London. "There was some haste to get this done and had they had more time and a relaxed schedule to get this done, they might have been able to get more for the business."