Cerberus Snags Chrysler

Updated from 6:42 a.m. EDT.

DaimlerChrysler(DCX) agreed to sell an 80% stake in its struggling Chrysler unit to private-equity titan Cerberus Capital Management for $7.4 billion.

DaimlerChrysler, which seeks to rename itself Daimler after the deal, will keep 20% of the U.S. carmaker. The announcement brings quick resolution to an issue that had been looming over Daimler ever since the Chrysler unit's performance turned south last year, and allows the German company to shed hefty obligations tied to Chrysler's health care and other benefits.

"We're confident that we've found the solution that will create the greatest overall value -- both for Daimler and Chrysler," said Daimler chief Dieter Zetsche. "With this transaction, we have created the right conditions for a new start for Chrysler and Daimler."

Shares of DaimlerChrysler were rising $3.06, or 3.7%, to $85.06 Monday. Chrysler Group's Detroit rivals, Ford (F) and General Motors(GM), also were climbing. Ford was up 38 cents, or 4.5%, to $8.75, while GM jumped $1.30, or 4.4%, to $30.76.

Recent weeks had brought speculation concerning a host of potential Chrysler bidders, including billionaire investor Kirk Kerkorian and Canadian auto parts maker Magna (MGA). The decision effectively unwinds a deal Daimler struck nearly a decade ago -- and will result in a net cash outflow to Daimler, after the company forked over $37 billion for Chrysler back in 1998.