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Cerberus Capital Management LP has outbid Magna International to win majority ownership of Chrysler Group in a deal worth US$7.4 billion.

DaimlerChrysler AG announced Monday that it will sell 80.1 per cent of Chrysler Group to an affiliate of Cerberus in a new Chrysler Holding LLC. DaimlerChrysler will keep a 19.9 per cent stake in the company.

"This is a jaw-dropper at the business level," said Business News Network's Michael Kane. "All of a sudden, out of nowhere, comes Cerberus Capital from New York."

The statement by the German-American automaker said that Chrysler would fulfill its heavy obligations for pensions and health care costs, a central issue that complicated negotiations.

After a vote by shareholders, likely in the fall, the company will change its name to Daimler AG.

"We're confident that we've found the solution that will create the greatest overall value -- both for Daimler and Chrysler," said DaimlerChrysler Chief Executive Dieter Zetsche, who oversaw Chrysler before becoming CEO in 2006.

"With this transaction, we have created the right conditions for a new start for Chrysler and Daimler."

He said the two companies will still remain friendly, working together on existing conventional and alternative drive systems, purchasing, sales and financial services outside North America.

"We very much look forward to our continued co-operation as business partners, as we want to continue to reap the mutual benefits of working together," Zetsche said. "That's one of the reasons why we're retaining a 19.9 per cent equity position in Chrysler."

The company said the deal is likely to be completed by the third quarter. It is expected to reduce Chrysler's overall profit by some $4.05 billion to $5.39 billion for 2007.

The deal comes almost a decade after Chrysler merged with Daimler-Benz AG in a deal worth $36 billion.

Earlier this month, Magna, partnered with Toronto-based investment company Onex Corp., appeared to be the front-runner in the bid for Chrysler.

As late as last week, Magna head Frank Stronach said he felt his company's bid, believed to have been about $5 billion, was still in the running.

Hargrove worried

Reacting to the news, Canadian Auto Workers union (CAW) President Buzz Hargrove said Monday that the deal was troubling.

"They own over 80 per cent, which means they own and control the company and they own and control the jobs of our members and that is very, very worrisome for our members, our families and the communities where our plants are at as well," Hargrove told Â鶹ӰÊÓnet.

"It is the first time the private equity groups, in a big way, have come into the manufacturing of vehicles in North America and no one knows what that all means."

Hargrove said the CAW would have preferred a company with a proven track record.

"We would've preferred someone who was in the industry that has a strong track record of job growth and growing the business," he said.

"Magna would have fitted that category but we weren't saying Magna only... we were saying anyone that shows that they're committed to strengthening the job security of members and their families."

He said Chrysler and Cerberus were going to brief CAW leadership on Tuesday.

The CAW represents about 10,000 Chrysler employees.

Analysts and union leaders feared a buyout would result in job cuts or the sell off of assets.

In the U.S., United Auto Workers (UAW) president Ron Gettelfinger, who has publicly opposed the sale, said it was the best option under the circumstances.

"The transaction with Cerberus is in the best interests of our UAW members, the Chrysler Group and Daimler," Gettelfinger said in a statement posted on the union's Web site.

The UAW represents about 50,000 Chrysler hourly workers.

With files from The Associated Press