Major Issues Resolved in GM-Chrysler Talks: Sources

NEW YORK/DETROIT(Reuters) – General Motors Corp and Cerberus Capital Management haveresolved the major issues in a proposed GM-Chrysler merger, but thefinal form of any deal would depend on the financing and governmentsupport available, sources familiar with the talks said on Wednesday.

Both sides have agreed that GM Chief Executive Rick Wagoner wouldlead the combined automaker, the sources said. A merged GM/Chryslerwould be the largest automaker by global sales.

As GM seeks some $10 billion in U.S. government aid to support thedeal, Chrysler owner Cerberus is in its own set of intense discussionswith banks to refinance Chrysler debt, the sources said.

The lending consortium — which includes JPMorgan Chase & Co,Goldman Sachs Group Inc, Citigroup Inc and Morgan Stanley — has notmade a decision yet, and talks are complicated because lenders havesold part of the debt to other investor groups, the sources said.

The banks hold the first-lien loan of $7 billion issued to financethe Cerberus buyout of an 80-percent stake in Chrysler from Daimler AGlast year. Banks have been selling off parts of it in an effort to trimtheir exposure to risky leveraged buyout debt.

Cerberus and Daimler provided a $2 billion second-lien loan to Chrysler due to weak interest for that debt.

GM has been in talks with Cerberus about buying Chrysler since lastmonth, but the discussions have been snagged by difficulty in securinginvestment or financing at a time when credit is tight and global autosales are rapidly declining, others close to the talks have said.

A decision by the Bush administration to provide the government’sfirst funding for the auto sector since the $1.5 billion bailout ofChrysler in 1980 has been widely seen as the merger’s best chance forsuccess.

The United Auto Workers union has been approached by GM in thecourse of the talks with Cerberus, people familiar with thenegotiations said.

As a condition of government support, GM has offered to merge theauto operations in a way that protects as many jobs and as much of theChrysler sales volume as possible, sources have said.

Analysts have been skeptical that the merged automaker, which wouldcontrol some 33 percent of the U.S. market, could be turned aroundquickly since GM and Chrysler are seen to be struggling with many ofthe same problems, including excess production capacity and too manydealers.

GM and Cerberus had no comment. A UAW spokesman had no immediate comment.