Cerberus to acquire Tower Automotive

Cerberus Capital Management, the private-equity group, is set to expand its growing automotive interests by buying Michigan-based Tower Automotive, one of the biggest makers of vehicle frames and chassis modules.

Cerberus has agreed to invest about $1bn in Tower, which has been in Chapter 11 bankruptcy protection for the past two years. The funds would be used to recapitalise the company, including repaying Tower's debtor-in-possession financing and other obligations.

If other investors submit bids, an auction will be held on June 21, with a view to Tower emerging from court protection at the end of July.

Private-equity and hedge funds have built up sizeable stakes in several troubled US automotive parts makers, seeing opportunities to improve their profitability by restructuring and cutting costs.

Cerberus has been among the most active. It is part of a group that is set to take control of Delphi, the biggest US parts maker, also currently in Chapter 11 protection, and is expected to submit a bid for DaimlerChrysler'sChrysler unit.

Tower has diversified its customer base, sold various businesses and negotiated new labour contracts since seeking court protection in February 2005.

It reported 2005 revenues of $3.3bn. Ford Motor made up 30 per cent of its sales, down from 35 per cent in 2003.

Kathleen Ligocki, chief executive, said yesterday hat "we have accomplished a tremendous amount during the last few years to revitalise Tower so the company can strongly compete in today's global automotive marketplace".

Supporters of private-equity involvement in the auto industry contend that these groups give the suppliers greater bargaining power in negotiations with their carmaker customers, and bring greater cost discipline.

However, Ron Gettelfinger, president of the United Auto Workers union lambasted the private-equity groups earlier this week, saying that they would cut jobs and benefits in their quest for a quick sale and profit.

source:www.news.moneycentral.msn.com