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GM purchase of Chrysler has 50% chance

General Motors Corp., the world's largest automaker, stands a 50% chance of buying DaimlerChrysler AG's Chrysler unit and may seek the purchase as a „defensive maneuver,” Merrill Lynch analyst John Murphy said.

„Given the transformation the US industry is beginning, we would not rule out a tie-up,” Murphy, who is based in New York, said in a note to investors yesterday. „GM may view the acquisition as a defensive maneuver to box out new competition.” General Motors Corp. and DaimlerChrysler AG are discussing options including a sale of the unprofitable Chrysler division, people with knowledge of the talks said February 16. DaimlerChrysler said on February 14 it was exploring „all options” for the Auburn Hills, Michigan-based unit after Chrysler posted a $1.5 billion (€1.1 billion) loss for last year.
Buying Chrysler might give Detroit-based GM more leverage with the United Auto Workers union and truck-manufacturing technology that could be used in common, Merrill Lynch analyst John Murphy said. He rates GM shares a „buy” and doesn't have a recommendation for Stuttgart, Germany-based DaimlerChrysler. „GM's global volume lead is certainly in question,” as Toyota Motor Corp. sells more vehicles each year, Murphy said in the note. „The acquisition of Chrysler would certainly allow GM to maintain its crown for many years to come.”
Last year, US sales fell 8.7% for GM and 7% for Chrysler, while Toyota's rose 12%. Toyota forecast worldwide sales of 9.34 million this year. GM hasn't made a forecast, after its global total last year fell to 9.09 million from 9.17 million in 2005.

Chrysler could add as much as $9 billion in value to GM because of its product lineup and „operating efficiencies including reduced research and development and advertising costs per vehicle,” Jon Rogers, a New York-based analyst at Citigroup Investment Research analyst, said in a note yesterday. GM is „a strong candidate” for buying Chrysler, he said. The UAW may be more willing to offer concessions to Chrysler if it's owned by a US-based company, said Rogers, who rates GM shares a „sell” and doesn't rate DaimlerChrysler shares. „GM likely would continue to build plants in the US and offer new jobs versus other buyers who may consider off-shoring UAW jobs.”

Other potential suitors for Chrysler include Nissan Motor Co. and Renault SA, rebuffed by GM last year for an alliance, or Chinese automakers such as Chery Automobile Co. or Shanghai Automotive Co., Murphy said. „Chrysler would be a more natural candidate for an automaker looking to develop a footprint in North America,” he said. The Chinese automakers would benefit from Chrysler's North American dealership network, which is expensive and difficult to replicate, Murphy said.
„This may be one of the most important reasons GM would make a defensive bid for Chrysler,” he said. Burnham Securities analyst David Healy called a Chrysler acquisition a „mistake merger” for GM. Healy, who spoke in an interview from Sierra Vista, Arizona, owns GM shares and doesn't rate them. „It's very unlikely that GM is going for it,” Healy said. „GM has a full plate.
They have been very successful with their own turnaround.” Roger Penske, CEO of car retailer United Auto Group Inc. and owner of a car-racing team, said in a February 17 interview that he also doesn't expect GM to acquire Chrysler. Penske, who spoke before a Nascar race in Daytona Beach, Florida, cited the overlap in the two companies' vehicle lineups.

The two automakers are holding discussions on an alliance to share the costs of designing and developing cars, people with knowledge of the talks said February 15. GM cut jobs, announced plant closures and scaled back production after posting more than $13 billion in losses in seven quarters through September 30.
The company's shares fell 39 cents to $35.95 at 4:05 p.m. in New York Stock Exchange composite trading. DaimlerChrysler's US shares declined 44 cents to $72.89. GM's 8.375% note due July 2033 rose 0.75 cent to 96 cents on the dollar, yielding 8.77%, according to Trace, the NASD's bond-price reporting service. DaimlerChrysler's 8.5% note due January 2031 gained 1.4 cents to 124.5 cents on the dollar, yielding 6.47%.
Credit-default swap contracts based on $10 million of GM bonds fell 0.64% to $327,875 and DaimlerChrysler's gained 2.6% to €39,480 ($51,873), according to Credit Market Analysis in London. The contracts, conceived to protect bondholders against default, pay the buyer face value in exchange for the notes should the company fail to meet its obligations on time. A price decline indicates improvement in the perception of credit risk. (Bloomberg)