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Mergers and acquisitions
Cerberus
What next for the beast that swallowed Chrysler?
Last Updated May 21, 2007
CBC News
Until recently, most Canadians knew the name Cerberus as the mythical multi-headed hound of Hades, gatekeeper of the underworld.
But the name gained new renown when the modern-day Cerberus captured business headlines by snatching the Chrysler group out of the hands of Canadian auto parts maker Magna International. Now this Cerberus, a U.S. private equity firm, is looking at a billion-dollar acquisition in Canada, according to published reports.
Less than a week after trumping Magna with a $7.4-billion US takeover bid for Chrysler, the New York-based investment giant seems poised to enter the bidding war for BCE Inc., Canada's largest telecommunications provider.
The Chrysler bid could end up looking like small potatoes by comparison, as the BCE bids are expected to be in the neighbourhood of $32 billion, according to Canadian Press reports.
Cerberus's successful bid came as a surprise to some. Union officials had opposed selling to a private equity firm, since it would be more likely to cut jobs. Until it roared onto the scene, Magna and Toronto investment firm ONEX Corp. were the main bidders.
A rich history
Cerberus the company has a much shorter history than Cerberus the hell-hound, but the company's for real and it's a beast in its own right.
In the space of 15 years, CEO Stephen Feinberg turned a $10-million US private equity firm into an investment colossus with ownership stakes in dozens of businesses, ranging from pharmaceuticals to firearms. The company's total holdings are worth approximately $60 billion US.
Venture capital firms like Cerberus invest in or purchase companies on the verge of bankruptcy. After taking control, they reorganize and re-sell the business, or divide it into pieces. One example is Mervyn's, an ailing department store chain that Cerberus bought from Target Inc. in 2004. The next year, the company closed nearly 80 stores, eliminating its presence from several states. Due to their attraction to bankrupt companies, firms like Cerberus are sometimes dubbed "vulture funds."
Among its vast holdings are gun manufacturers Remington Arms and Bushmaster Firearms Inc., surfacing manufacturer Formica, FILA sporting goods and Spyglass Entertainment, producer of such films as The Sixth Sense and Bruce Almighty.
Feinberg enlisted some well-connected help on his rapid rise in the investment world. Former U.S. Treasury secretary John Snow was named company chairman in 2006 and former U.S. vice-president Dan Quayle is also among the company brass.
However, such political contacts were the source of some recent criticism for their possible link to the current controversy over U.S. Attorney General Albert Gonzales's firing of several U.S. attorneys. Among those fired was Carol Lam, who was investigating Cerberus's campaign contributions to Republican Congressman Jerry Lewis.
Lewis received $110,000 in campaign contributions from Cerberus in 2003. Soon after, he approved the extension of a $1-billion contract to MCI, a Cerberus-owned company.
Canadian bidding war
The battle for BCE may prove more difficult, as Cerberus must leap a few hurdles before getting its paws on the company. First, it has to round up enough Canadian backing to satisfy legal limits on foreign ownership of telecommunications firms. Second, Cerberus may find itself the underdog in this bidding war.
BCE CEO Michael Sabia helped create a consortium of bidders allied with the Canada Pension Plan Investment Board, which has fuelled speculation that BCE is favouring a Canadian bid. The Ontario Teachers' Pension Plan, another investment heavyweight, has also signalled interest in the sale.
But as the Chrysler sale proved, Cerberus can't be counted out. Not only is it a financial behemoth, it knows how to do business in Canada.
Cerberus in Canada
The BCE bid isn't Cerberus's first foray north of the border. The company threw a lifeline to the floundering Air Canada in 2004, paying $183 million US as part of a restructuring plan to pull the airline from bankruptcy. As part of the deal, Cerberus gained a 9.2 per cent stake in ACE Aviation holdings, Air Canada's parent company.
In fact, Air Canada, and now Chrysler, are just parts of company's offshoot empire in transportation.
Cerberus also owns the aircraft leasing business AerCap, and on the ground it already holds stakes in General Motors, North American Bus Industries, Optima Bus, Blue Bird Corp, and ANC Rental, owner of the National and Alamo car rental operations.
Cerberus is carving out its own niche in air and land travel. Even for a well-heeled hound, it certainly gets around.
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