Billionaire investor Kirk Kerkorian, almost 10 years after his failed first attempt to buy Chrysler, reentered the fray on 5 April and offered to pay $4.5 billion to buy the struggling automaker from DaimlerChrysler, which paid almost $40 billion for it in 1998.
The 89-year-old Kerkorian, once Chrysler’s largest shareholder, said in a letter from his investment company Tracinda Corp. to DaimlerChrysler that the offer is contingent on Chrysler working out a favorable labor contract with the United Auto Workers union.
It was the first publicly disclosed bid for Chrysler and sent DaimlerChrysler’s US-listed shares up almost 5%.
The move is also Kerkorian’s second major power play at a US automaker in the past two years. He previously owned as much as 9.9% of General Motors Corp., but sold that stake last year following the automaker’s rejection of his proposed tie-up with Nissan Motor Co. and Renault SA.
Kerkorian told DaimlerChrysler that he was willing to put down a $100 million deposit as a sign of good faith.
DaimlerChrysler spokesman Thomas Froehlich said “all options are open,” but declined to comment specifically on Tracinda’s offer.
The letter said it would offer the UAW and Chrysler management the opportunity to participate as equity partners in the deal.
Erich Merkle, an analyst with IRN, said the $4.5 billion offer sounded low, although the company faces many challenges.
“I think Chrysler can probably fetch some place higher than, say, $5 billion,” Merkle said, but added that it was ”really damaged merchandise” right now.
Kevin Tynan, analyst with Argus Research, agreed with Merkle’s cost assessment and said this would likely be Tracinda’s opening salvo.
“I would imagine if it winds up being Tracinda ... it winds up higher than $4.5 billion,” he said.
DaimlerChrysler’s US Big Board shares rose $3.93 to $84.49, their highest point since July 1999. In the past year, the shares have traded as low as $45.98, which it hit last July.
Tracinda also said it seeks exclusive rights to conduct due diligence on Chrysler, which it believes could be completed within 60 days.
Sources close to the situation have told the news agency that private equity groups Cerberus Capital Management and Blackstone Group, plus Canadian car parts group Magna International Inc. are all possible candidates to take over Chrysler.
FIVE TO SEVEN YEARS
Following the US government’s bailout of Chrysler in the 1980s, Kerkorian began amassing shares in Chrysler and ultimately controlled 100 million shares.
In 1996, he launched a failed, hostile $22.8 billion bid for control.
After the $40 billion 1998 buyout of Chrysler, Kerkorian sued DaimlerChrysler, charging that it deceived shareholders by characterizing the deal as a “merger of equals.” The suit was later dismissed.
In a separate letter to DaimlerChrysler Chief Executive Dieter Zetsche, former Chrysler executive and current Kerkorian adviser Jerome York said a long-term approach was needed to solve Chrysler’s problems.
York said it would likely take five to seven years to build Chrysler into a “robust and lasting, stand-alone entity.”
He also noted that a private ownership approach was in the “best interest of all Chrysler constituencies.”
York said a substantial portion of Chrysler equity should be offered to UAW as part of finding a solution to rising health care costs.
UAW spokesman Roger Kerson declined to comment on Tracinda’s bid. UAW President Ron Gettelfinger said last week in Detroit that the union wanted DaimlerChrysler to retain the US unit.
“This latest offer reinforces our view that the most likely outcome for Chrysler is a sale to a private equity buyer which promises a conciliatory approach to labour,” Lehman Brothers analyst Brian Johnson said.