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Two Private Equity Firms Interested In Purchasing Chrysler

Cerberus Capital Managmeent and Blackstone Group/Centerbridge Partners have been meeting with Chrysler.

DETROIT (AP) – Two private equity firms appear to be the front-runners in the quest to buy Chrysler Group, the troubled U.S. arm of DaimlerChrysler AG.

Cerberus Capital Management LLC and a consortium of investors headed by Blackstone Group and Centerbridge Partners LP spent much of last week at Chrysler's Auburn Hills headquarters crunching numbers and meeting with top Chrysler executives, a company official said Tuesday.

The Chrysler official, who spoke to The Associated Press on condition of anonymity on Tuesday due to the sensitive nature of the talks, said potential bidders were deeply studying Chrysler's finances.

Canadian auto parts maker Magna International and General Motors Corp. also reportedly have looked into buying all or part of Chrysler Group. Private equity firms Apollo Management LP and the Carlyle Group also are said to be interested.

Spokesmen for the private equity firms have not talked about the issue and GM will not confirm or deny the reports. Magna's top executive has confirmed his company's interest.

Yet while Magna remains interested, KeyBanc Capital Markets analyst Brett Hoselton said in a note to investors that his sources, whom he did not identify or describe, indicate that the likelihood of the Canadian company taking a stake in Chrysler recently has been reduced.

''Our sources have indicated that Cerberus and Blackstone have emerged as the leading contenders to acquire Chrysler, and that due to valuation issues, MGA (Magna) is now playing a smaller role in the sale process,'' Hoselton's note said.

Analysts have speculated that Magna might join with a private equity firm in buying parts of Chrysler, with Magna holding on to parts of the U.S. business and the equity firm selling off its pieces at a profit.

Hoselton said Magna's recent discussions with Chrysler had the auto parts supplier taking a 30 to 40 percent minority stake in the company for about $1.5 billion. Magna said last month it had $1.9 billion in cash reserves in 2006 and another $1.8 billion in credit available. The company also cut its dividend in part to raise cash for possible acquisitions.

But Hoselton's note said Magna has an aversion to debt, making an outright acquisition of Chrysler unlikely.

Several analysts have said that a GM takeover of Chrysler is unlikely, and that talks between GM and Chrysler have focused more on joint development of technology and vehicles such as a large sport utility vehicle.

DaimlerChrysler Chief Executive Dieter Zetsche told reporters last week in Geneva that it also is possible that Chrysler could remain part of the German company.

It was Zetsche who first floated the idea of a Chrysler sale. On Feb. 14, he said that all options were open for the U.S. operations and he would not rule out a sale.

Chrysler last month announced it lost $1.475 billion in 2006 and said it expects losses to continue through 2007. DaimlerChrysler, however, earned $4.26 billion in 2006.

The news was accompanied by plans to shed 13,000 jobs, including 11,000 production workers and 2,000 salaried employees as it trims expenses and factory capacity to match declining demand for its products.