Kerkorian Closer To A Daimler-Less Chrysler

Forbes.com ^ | 06.13.03 | Zac Chase

[Willie Green]

For education and discussion only. Not for commercial use.

Pulling apart two of the world's top auto manufacturers half a decade after they've merged sounds like an impossible undertaking. But where there's a ruling, there might have to be a way.

Delaware U.S. District Judge Joseph Faran certified a class-action lawsuit filed by DaimlerChrysler shareholders. Led by billionaire investor Kirk Kerkorian, the shareholders claim Daimler-Benz misrepresented the merger of Chrysler as a "merger of equals" in 1998.

Kerkorian's Tracinda is the automaker's third-largest holder with 2.3% of the shares. He also owns MGM Mirage. He is a member of Forbes' 400 Richest Americans and World's Richest People, with an estimated net worth of $3.4 billion. He and former Chrysler Chairman Lee Iacocca announced a hostile bid for Chrysler in 1995. The attempt met with opposition from Chrysler's executives and Kerkorian aborted his attempt a few years later.

If the court case goes in favor of the shareholders, that could make waves for the auto manufacturer. Kevin Tynan, an analyst for Argus Research, says it is unclear what type of restitution can be made: "Do you undo the deal five years later?"

DaimlerChrysler is not worried. They stated today, "We continue to believe our motions for summary judgment and dismissal of the case in its entirety have substantial merit."

If it is wrong, Tynan is sure financial restitution would be devastating to share prices, but not a sign the end is nigh. "If it's an issue of 'Does the company survive,' I'm sure they will."

The suit was filed in October 2000 after the Financial Times reported that Daimler-Benz Chairman Juergen Schrempp said he always intended Chrysler to be nothing more than a unit of DaimlerChrysler.

Tynan says the company's lagging stock price is likely tied to the suit. "If the shares were $200 right now, do you think [shareholders] would be making as big of a deal?" he says. "You throw three bad years in there and everybody's looking for somebody to blame."

Since the last day of trading in 1998, the stock has fallen 66%. It closed at $33 today, down 1.26%. Though it is up 9.04% for the year.

If reports that the shareholders have documents showing Daimler-Benz was calling the merger a takeover are true, then officials at the then-German-owned company misjudged American corporate culture, says Tynan. "Put it down to their arrogance or whatever, they didn't see this coming back and biting them the way this has."

A December 1 court date means the effect of any financial restitution remains a distant concern. As for the size of possible restitution, it could cut into capital for future products, according to Tynan. "They need to keep that product portfolio pipeline revved up. Now is not a good time to be paying out a lot of cash when it needs to go towards product." Especially when the company is facing competition from Toyota Motor and Nissan Motor in the minivan market.

DaimlerChrysler's first-quarter revenue fell 9% to 33.7 billion euros on earnings per share of 58 cents.

Whatever happens, the importance of the certification is not to be mistaken. "You're talking about the future of the company. This is a big deal," Tynan said, "Especially with a guy [Kerkorian] of that magnitude. You just lied to the guy right to his face."

[oceanview]

If Daimler dumps Chrysler, they are toast, or will be picked up for pennies by another major auto maker. Mercedes has failed to take dramatic steps: dump all Chrysler sedans, stick with Jeeps and minivans and pickups and SUVs.

[tiamat]

Q. How do you pronounce "Daimler-Chrysler"?

A. The "Chrysler" is silent!

Tia

[Cachelot]

Daimler Benz should be booted out of whatever they have their grubby little fingers in, wether it's mergers or national markets.

Nasty german critters. From what I hear, the Palestinian Authority owns a sizable chunk of them (30% + ?).

[waterstraat]

Iocooca came to me, and to you, to save chrysler, and to save american jobs. WE did. Then somehow, this american company got sold to the sons of the nazis, and now we see the number of americans employed by dalmer to be less and less each year. This is not what americans wanted. Disapprove the merger, set chrysler free to be an american company again.

[oceanview]

those "nazis" build MBs in Alabama with US workers.

If Chrysler is cut loose, they will go bankrupt quickly, requiring either another bailout or being bought for pennies on the dollar by another car company who will slash costly US operations and manufacturing right away.

[waterstraat]

That is a matter of opinion. If they put me in charge, I could make Chrysler profitable.