Daimler AG gives up Chrysler stake, writes off $700M

German automaker Daimler AG has agreed to give Cerberus Capital Management its 19.9 percent share of Chrysler LLC and write off a $1.5 billion loan, helping the Detroit automaker to clear way for the Detroit automaker’s proposed alliance with Fiat SpA and avoid bankruptcy.

Daimler today signed a term sheet with Cerberus Capital Management and the U.S. Pernsion Benefit Guaranty Corp. The agreement ends the DaimlerChrysler era, which left Chrysler in a shambles, followed by Cerberus’s acquisition, which burdened Chrysler with billions of dollars in debt.

Under the deal, Cerberus and Chrysler will waive all claims against Daimler and Chrysler will make three annual payments of $200 million each into the company’s pension plans, beginning on Thursday, April 30 and on the same date in 2010 and 2011. Daimler, which had already written the value of its stake down to zero, will take an expense of $700 million against pre-tax earnings in the second quarter.

In a statement, Daimler said:

“Daimler’s remaining 19.9 percent shareholding in Chrysler will be redeemed, and Daimler will forgive repayment of the loans extended to Chrysler, which were already written off in the 2008 financial statement.”

The Daimler statement also said, “Following the transfer of the term sheet into the final definitive agreements, the relationship between Daimler and Chrysler will solely consist of dealer-supplier-customer relations including limited support for certain dealer financing until the end of September 2009.”