Cerberus Goes Where No Firm Has Gone Before

In the last year, private equity firms have broken the mold over and over again. They have bought technology and finance companies, previously thought unsuitable for buyouts. The deals have gotten bigger; the financing more creative.

But with an agreement to take control of Chrysler, private equity is venturing into virtually uncharted territory.

"Private equity can go anyplace," said Wilbur Ross, who has also invested in businesses once thought off limits.

Sure, private equity firms have bought troubled industrial companies in the past. And they have dealt with unionized work forces. But no one has tried to grapple with a company with the problems the size of Chrysler's and with a union as powerful as the United Automobile Workers.

Perhaps more important, every move by its new private owners will come under intense scrutiny. Chrysler is a symbolic American brand, one recognized worldwide. And private equity, which has bought name companies from Toys "R" Us to Univision and accounted for a fifth of the record $3.8 trillion in deals worldwide last year, has itself come under an increasingly harsh spotlight, as Congress discusses tax changes and the public gasps at the enormous wealth of executives.

The private equity firm taking on the challenge, Cerberus Capital Management, based in New York, made its name on its hard-charging negotiating style in the rough-and-tumble world of distressed-debt investing. The firm has invested in troubled companies that it believed could benefit from rigorous cost-cutting and operational controls. Its portfolio includes the Formica Corporation, the Mervyns department store chain and a controlling interest in GMAC, General Motors' financing arm.

Cerberus has worked with unions in the past. In 2004, Cerberus led a group that took control of Air Canada, only months after the airline's management had rebuffed its advances. Its window of opportunity opened when its main rival in the bidding, the billionaire Victor Li, withdrew his offer. Labor groups opposed efforts by Mr. Li -- who apparently did not meet with the unions -- to cut costs at the struggling airline. Cerberus then stepped in, eventually winning over Air Canada management and unions. ...

Cerberus, by contrast, is buying Chrysler outside of bankruptcy, which brings a different dynamic to the negotiation process. Seeking court permission to break labor agreements is not an option. And considering the large investment Cerberus plans to make in Chrysler, it has ample reason to avoid a bankruptcy filing.

The threat of bankruptcy, however remote, is bound to be a shadow player as Cerberus and the U.A.W. turn to the issue of health care liabilities, said Daniel L. Keating, a vice dean at Washington University School of Law in St. Louis, who called the health care issue "the 10-ton gorilla on the cost side."

•	Cerberus Goes Where No Firm Has Gone Before The New York Times, Tuesday, May 15, 2007 Byline: Michael J. de la Merced and Peter Edmonston

	Story also ran in 3 others:  Lakeland Ledger (FL), Tuscaloosa News (AL) and Times Daily (AL)