May 14 (Bloomberg) -- DaimlerChrysler AG ended its nine- year ownership of money-losing Chrysler, handing control of the U.S. carmaker to private-equity firm Cerberus Capital Management LP and getting out of $19 billion in retirement liabilities.

Cerberus will invest $7.4 billion in a new venture called Chrysler Holding LLC, while Stuttgart, Germany-based DaimlerChrysler will contribute a net $650 million. Cerberus gets 80.1 percent of the company; Daimler, which paid $36 billion for the U.S. automaker in 1998, retains 19.9 percent.

Daimler's stock peaked five months after the takeover and never recovered. Chrysler lost $680 million last year and ceded market share to Toyota Motor Corp. while relying too much on the stagnant North American market. DaimlerChrysler Chief Executive Officer Dieter Zetsche failed to keep Chrysler profitable after completing a reorganization he began as head of the business.

``The sad and unfortunate reality for the DaimlerChrysler shareholder is how much value destruction there has been over the years,'' said James Bevan, who helps manage about $9 billion as chief investment officer at CCLA Investment Management Ltd.

Shares of DaimlerChrysler rose 1.09 euros, or 1.8 percent, to 61.70 euros in Frankfurt. Earlier the stock jumped as much as 7.8 percent, the biggest gain since former CEO Juergen Schrempp, architect of the Chrysler purchase, announced his departure in July 2005.

The stock has gained 25 percent since Feb. 13, the day before Zetsche said ``all options'' were open for Chrysler. DaimlerChrysler's U.S. shares rose $2.12 to $84.12 at 4:01 p.m. in New York Stock Exchange composite trading. Bonds reach record highs.

Chrysler `Solution'

``We're confident that we've found the solution that will create the greatest overall value, both for Daimler and Chrysler,'' said Zetsche in a statement. The company will change its name to Daimler AG.

Of New York-based Cerberus's total contribution, $5 billion will go to Chrysler's industrial business and $1.05 billion into Chrysler's financial services business, while Daimler gets the balance. Daimler will end up paying $650 million in the transaction, including granting a loan of $400 million to Chrysler.

Existing projects with Mercedes will be continued and a joint council, consisting of management board representatives, will be formed to discuss business projects. The deal is expected to close in the third quarter.

``The amount Daimler is having to pay is much less than feared,'' said Juergen Meyer, who manages about 1.3 billion euros at SEB Asset Management in Frankfurt. ``It's very important to look at the cash flow.''

UAW Support

United Auto Workers President Ron Gettelfinger said in a surprising statement that he supports the deal, terming the takeover ``in the best interests of our UAW members, the Chrysler Group and Daimler.'' Earlier this month, Gettelfinger said he opposed private-equity firms because they ``strip out'' jobs and ``flip'' them for quick profit.

Gettelfinger said the union was ``dealt a hand'' with the Cerberus choice and he had no input into the decision. Canadian Auto Workers President Buzz Hargrove said he opposes the deal. Hargrove is scheduled to meet with DaimlerChrysler leaders, and Gettelfinger will meet with officials of Cerberus, named for the three-headed dog of Greek mythology.

Pension and health-care costs associated with Chrysler will be taken over by the new company.

`Decisive Detail'

``The decisive detail is the fact that health care and pension obligations remain at Chrysler,'' said Uwe Treckmann, Equity Strategist at Dresdner Bank in Frankfurt.

Chrysler sells fewer cars in the U.S. than General Motors Corp., Ford Motor Co. and Toyota, making it the fourth-largest U.S. carmaker. Daimler-Benz AG bought Chrysler Corp. in 1998 for $36 billion in what it billed as a ``merger of equals.''

The U.S. carmaker will no longer report quarterly earnings, which will help the management team, including Chief Executive Officer Tom LaSorda and Chief Operating Officer Eric Ridenour, ``to take a longer-term view,'' Cerberus Chairman John Snow said during a press conference.

LaSorda already is in the midst of a restructuring designed to reduce costs at Auburn Hills, Michigan-based Chrysler, including shedding 13,000 jobs and closing a Delaware manufacturing plant by 2010. LaSorda is slated to discuss today's developments with the media at Chrysler's headquarters tomorrow.

``Chrysler is poised to accomplish great things in the years ahead,'' Snow, a former U.S. treasury secretary, said in an interview. ``Chrysler has a great future. It has been through some difficult times. Together we can overcome the difficulties.''

Chrysler Profits

Chrysler since 1998 has posted annual profits of as much as $5 billion and losses almost as large, increasingly becoming the target of investors' ire. Its latest tailspin marked a third descent into losses since Lee Iacocca saved the automaker from bankruptcy 25 years ago.

Chrysler Corp. was created in crisis. It was formed in 1925 by former GM executive Walter Chrysler, who five years earlier had taken over Maxwell Motor Co. at the request of creditors and restored profit. He had been tapped to rescue Maxwell after leaving GM in a dispute with Chairman William Durant.

Early on, Chrysler was the 27th-largest car company in the U.S. By 1929, it had cemented its position as third biggest, behind GM and Ford Motor Co.

For the past three decades, Chrysler has veered from failure to success, with periodic boardroom drama. The automaker almost went bankrupt in 1980, after fuel shortages and rising gasoline prices choked sales of its big, rear-wheel-drive cars.

Chrysler Bailout

President Jimmy Carter signed a $1.5 billion federal loan guarantee to keep the company afloat. Iacocca, who joined Chrysler as chairman after being fired at Ford by Henry Ford II, became a national celebrity with his advertising challenge: ``If you can find a better car, buy it.''

Cerberus may have gotten an edge by hiring former Chrysler Chief Operating Officer Wolfgang Bernhard as an adviser, the CAW's Hargrove said yesterday. Bernhard, who left in 2004 after four years as COO, won't join Chrysler's management team, Snow said.

Last year, Cerberus led a group of investors that bought a 51 percent stake in finance company GMAC LLC from parent GM, the largest U.S. automaker. Detroit-based GMAC makes loans for purchases of homes and cars.

The firm was also part of a group that offered to invest $3.4 billion in bankrupt auto-parts maker Delphi Corp. Without giving a reason, Delphi said last month it expects Cerberus to back out, and Cerberus has so far declined to comment.

Private Equity

Cerberus's auto division is run by former Ford executive David Thursfield, 61. The firm's acquisitions in the car industry include Peguform GmbH, a German manufacturer of plastic parts for vehicle interiors, as well as the controlling stake in GM's financing unit.

Stephen Feinberg, a trader at Drexel Burnham Lambert Inc. in the 1980s, started Cerberus with $10 million in 1992. He's since built it into a $24 billion investment firm that also owns Albertson's LLC supermarkets and IAP Worldwide Services Inc., one of the largest providers of logistics support to the U.S. Army in Iraq.

Daimler tomorrow may say Chrysler lost 908 million euros in the first quarter on the cost of job cuts and closing a factory, with group net income reaching 1.26 billion euros, the median of nine analysts surveyed by Bloomberg News. Year-earlier figures aren't available because of an accounting change.

Net income will fall by between 3 billion euros and 4 billion euros this year. The 19.9 percent stake in Chrysler Holding LLC will be included at equity in the van, bus and other segment for reporting purposes.

DaimlerChrysler's 8.5 percent notes maturing in 2031 rose to a record 3.2 cents to 130 cents on the dollar, according to Trace, the bond price reporting service of the NASD. The yield sank to 6.09 percent, or 1.23 percentage points over Treasuries.

To contact the reporters on this story: Jeremy van Loon in Berlin at jvanloon@bloomberg.net; Jeff Bennett in Southfield, Michigan, at jbennett17@bloomberg.net

Last Updated: May 14, 2007 18:57 EDT