DaimlerChrysler's auto-financing site, Giggo.com, and online car-loan provider PeopleFirst.com today said that they have struck a deal to unite as a full-service auto-financing provider over the Web.
The new company, which will use the Giggo name, will combine PeopleFirst's strengths in online car-loan services with Giggo's auto-financing and shopping resources, company representatives said.
Under the terms of the agreement, San Diego-based PeopleFirst will acquire all of the outstanding shares of privately held Giggo, based in Dallas, from parent company DaimlerChrysler. In turn, the auto giant will take a 23 percent equity interest in the combined company.
DaimlerChrysler also said it will provide $20 million in subordinated debt to the new company over a five-year term. This means that if the new Giggo goes under, the subordinated debt-holders will receive payment only after senior debt claims are paid in full.
Like other giant manufacturers in the auto industry, DaimlerChrysler has been busy speeding up various online initiatives. Besides being a part of closely watched auto exchange Covisint with rivals Ford Motor and General Motors, DaimlerChrysler has focused on using the Web to drive down its own internal purchasing costs. With its recently announced FastCar program, DaimlerChrysler plans to reduce costs in the development of new cars by connecting its internal design, engineering, manufacturing, procurement and other, related processes over the Web.
However, the online lending sector has been in a slump recently, with most companies trying to just get by. Shares of online loan providers Lending Tree, Mortgage.com and E-Loan all have been hard hit. E-Loan is trading at $3.44, far from its 52-week high of $45.50; Lending Tree shares are at $5.06, down from a high of $21; and Mortgage.com is just above the $1-per-share range, down from a 52-week high of $22.75.
The newly combined company will be led by PeopleFirst co-founder and chief executive Gary Miller, while Giggo's chief executive, Brian Reed, takes on the presidency. Dave Zeller, the president and chief operating officer of PeopleFirst, will become COO of the new company, and PeopleFirst's chief financial officer, Randy Ellspermann, will retain his title at the new entity.
As part of the transaction, which was handled by Merrill Lynch and Salomon
Smith Barney, the new company will include three new board members from DaimlerChrysler.
The deal, which is subject to regulatory approval and certain closing
conditions, is slated to close Sept. 15.