Dubai Buys $1 Billion of Shares in DaimlerChrysler

Jan. 30, 2005; Bloomberg reported that Dubai bought a $1 billion stake in DaimlerChrysler AG, becoming its third-largest shareholder as the carmaker seeks to reverse three years of declining revenue.

Persian Gulf oil producers such as the United Arab Emirates, Saudi Arabia and Kuwait reaped a windfall last year from record oil prices, boosting their funds to invest. Mohammed Al Gergawi, chief executive of the government-owned Dubai Holding, announced the transaction in a faxed statement today.

DaimlerChrysler Chief Executive Officer Juergen Schrempp is counting on growth at Chrysler to compensate for declining earnings at Mercedes, which generated more than half of DaimlerChrysler's operating profit in 2003. Revenue at the company fell for the past three years.

``This is a real surprise but it should be good news for DaimlerChrysler,'' said Juergen Pieper, an analyst at Bankhaus Metzler in Frankfurt, who has a ``buy'' rating on the stock. ``It shows there's big interest among institutional investors who find the company attractively valued.''

The shares of DaimlerChrysler trade at 13.33 times expected profit, compared with 21.7 times at Volkswagen AG. The company was created when Daimler-Benz AG agreed to buy Chrysler Corp. in May of 1998 for $43 billion in stock and assumed debts.

``This is a perfect time to buy shares in DaimlerChrysler as the company begins to bear the fruits of its merger,'' Al Gergawi, chief executive of the government-owned Dubai Holding, said in the statement. The U.S.-German automaker ``is now ready to be a leader'' in the industry.

`Long-Term' Investor

DaimlerChrysler spokesman Thomas Froehlich confirmed Dubai's purchase in a telephone interview from Stuttgart, Germany. ``We very much welcome this as Dubai is a long-term orientated investor,'' Froehlich said. He didn't have any other details.

Sameer Al Ansari, chief executive of Dubai International Capital, the Dubai Holding unit that bought the DaimlerChrysler shares, declined to comment.

DaimlerChrysler shares have risen 6.6 percent since it reported a return to profit on Oct. 29. The shares closed at 34.54 euros on Friday, compared with 32.40 euros three months ago.

Analysts prefer other carmakers, with only 22 percent of investment banks tracked by Bloomberg recommending buying DaimlerChysler shares. Bayerische Motoren Werke AG is rated ``buy'' at 53 percent of investment banks, and Volkswagen is a ``buy'' at 38 percent, according to Bloomberg data.

DaimlerChrysler shares since the combination was completed in November 1998 have failed to keep pace with the stock of other car companies. Investors since November 1998 have lost 9.9 percent on an annual basis, compared with an annual 8.5 percent annual gain at BMW, according to Bloomberg data.

Turning Around

The company reported a third-quarter profit last year as earnings growth at the Chrysler division offset a decline at the Mercedes Car Group. Net income was 951 million euros ($1.21 billion), compared with a loss of 1.65 billion euros a year earlier.

Deutsche Bank AG, Europe's third-largest bank, is the company's largest investor, holding 235 million shares. Kuwait, the Middle East's fifth-largest oil producer, ranks second, with 73.5 million, according to Bloomberg data.

At Friday's share price in New York, a $1 billion stake in DaimlerChrysler is equal to about 22.2 million shares, or 2.2 percent of the company. Froehlich wouldn't confirm that, because the company isn't obliged to report stakes of less than 5 percent.

Dubai set up Dubai International Capital last year to invest in international and Arab companies to help the emirate grow its own leisure, property and other businesses.

The government-run Kuwait Investment Authority, which invests 10 percent of the emirate's oil money every year, manages a portfolio worth about $100 billion, according to Standard Chartered Plc. The Abu Dhabi Investment Authority of the United Arab Emirates manages assets worth about $200 billion.