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JULY 12, 1999

DaimlerChrysler buys 40% of McLaren

AS we have been suggesting for some time, DaimlerChrysler has announced that it is buying a 40% shareholding in the TAG McLaren group of companies. The deal is believed to be worth around $200m and will see the automobile giant becoming the biggest shareholder in the group. It will, however, continue to be run as an independent operation with RonÊDennis acting as chairman and chief executive.

"This element of our long-term strategy is designed to further enhance our products and differentiate the Mercedes-Benz brand in an increasingly competitive market," said DaimlerChrysler chairman Jurgen Schrempp.

McLaren intends to design and build the new Mercedes-Benz SLR supercar for DaimlerChrysler. This will begin to be marketed in the year 2003 and is intended to be a competitor to Ferrari in the supercar market. The aim is to build around 500 cars a year.

The TAG McLaren Group currently consists of six major companies including McLaren International (the Formula 1 team), McLaren Cars - which will build the road cars, TAG Electronic Systems, TAG McLaren Marketing Services and TAGÊMcLarenÊAudio. The group employs around 750 people and made profits of $34.5m on sale of $165m in 1997. These figures will probably have improved in 1998 but big companies - particularly those which have to answer to shareholders - rarely pay more than 10 times the annual profits of a company.

This would mean that, allowing for a good profit in 1998, that the group is unlikely to be worth more than $500m and so DaimlerChrysler could not easily justify paying more than $200m for the 40% shareholding. With the TAG Group having sold half of its 60% shareholding and Ron Dennis's family having agreed to part with one quarter of its 40% holding, the new share structure will see DaimlerChrysler controlling 40%, TAG 30% and Dennis 30%. The sale will mean that TAG will get around $150m and Dennis will make around $50m. The details of the deal are, however, confidential with all parties bound by a non-disclosure agreement.

The move means that TAG will recoup its investment in the group - probably with a considerable profit as well and that all parties can look forward to further profits if DaimlerChrysler decides to increase its involvement in the future - which is quite possible.