Daimler to Sell Chrysler

The agreement marks the end of a landmark trans-Atlantic merger in the auto industry which turned into a problem for the group.

"An affiliate of private equity firm Cerberus Capital Management will make a capital contribution of 5.5 billion euros in return for an 80.1-percent equity interest in Chrysler," DaimlerChrysler said in a statement.

DaimlerChrysler, which will be known as Daimler AG, will hold a 19.9-percent equity interest Chrysler.

Shares in DaimlerChrysler, which is the world's fifth biggest carmaker, soared by 6.8 per Monday to 64.69 euros following the announcement.

The DaimlerChrysler's supervisory board is due to meet Tuesday when the company is set to unveil its first-quarter results.

Report: Deal will free Daimler from liabilities

The Wall Street Journal said the proposed deal would allow the German auto giant to shed Chrysler's $18 billion in retirement and healthcare liabilities and could open the door to further restructuring of the nation's unionized auto makers.

Under the proposed deal, Chrysler Chief Executive Tom LaSorda would continue to run the company, The Journal reported, citing people familiar with the talks.

Cerberus adviser Wolfgang Bernhard, a former Chrysler chief operating officer, would not have an executive role at the automaker, but could have a board seat under the proposed deal, according to The Journal report.

Cerberus has a record of slashing costs at operations it acquires, and some analysts say a Cerberus-owned Chrysler could move much more aggressively to cut labor costs, prune Chrysler's overpopulated network of US dealers and shift investment to developing markets overseas, the US paper said.

But any final deal for Chrysler also hinges on what happens this summer, when the United Auto Workers kicks off negotiations for new master contracts with all three Detroit auto giants, The Journal said.