Daimler/Abu Dhabi

Publication date: 24 March 2009

Daimler/Abu Dhabi

These days, carmakers need cash any way they can get it. Increasingly, that means begging for handouts from cash-strapped governments. German authorities should therefore feel relieved about Daimler’s announcement on Sunday of a cash injection from Aabar Investments, an Abu Dhabi-based investment fund.

In return for €2bn in cash, the maker of Mercedes luxury cars will hand the part state-owned company new shares worth 9.1 per cent of Daimler. That will dilute existing shareholders. The Kuwait Investment Authority, currently the carmaker’s biggest shareholder at 7.6 per cent, will see its stake fall to 6.9 per cent, for example. Not pleasant, but it could be worse. At €20.27 a share, Aabar’s stake was priced at only a slight discount to the company’s €21.34 closing price on Friday. Had Daimler eventually been forced into a rights issue instead, the discount might have been far steeper.

The benefits to Abu Dhabi are less clear cut. Sure, Daimler is one of the world’s leading car brands. But it has been hit by the downturn like everyone else. Profits at the group took a €2bn hit in the fourth quarter as it wrote its 19.9 per cent stake in Chrysler, the ailing US carmaker, down to zero. Last month, the company warned that it was headed for another big loss in the first quarter as it announced a cost-cutting drive. Daimler and Aabar said the investment will open the door to “joint strategic initiatives” in areas such as environmentally friendly cars and new compounds for auto manufacturing.

Daimler will also build a training centre in Abu Dhabi to nurture young auto industry talent. These alone are unlikely to be enough to justify a big investment – although with its shares down about a third since talk of sovereign wealth funds’ interest in Daimler first surfaced in October, the company might look cheap to an investor with a long-term view.

Source: Financial Times