Kerkorian Opens Bids for Chrysler
Friday, April 6, 2007
Kirk Kerkorian, the 89-year-old billionaire investor who has agitated boardrooms from Hollywood to Detroit, proposed a $4.5 billion buyout of Chrysler yesterday, the first public offer for the troubled carmaker.
The offer opened what is expected to be a high-stakes bidding war for Chrysler. In typical Kerkorian style, the proposal was designed to pressure the board of its parent company, DaimlerChrysler, which has remained mum about potential buyers.
Kerkorian's investment firm, Tracinda, sought exclusive rights to examine Chrysler's financial records for 60 days. Tracinda said it was willing to front $100 million to conduct the review.
DaimlerChrysler's stock rose sharply after Kerkorian's bid was announced. It closed up nearly 3 percent at $84.80, its highest close since 1999.
"This is classic Kerkorian . . . taking the first-strike advantage and having everyone react," said David Stowell, professor of finance at Kellogg School of Management at Northwestern University. "DaimlerChrysler may like to deal with this in a quiet manner, but Kerkorian does not want that. He wants to push them."
DaimlerChrysler spokesman Han Tjan said the company had no comment on the possibility of a sale of its U.S. subsidiary to Kerkorian.
Kerkorian's offer is contingent on an agreement with Chrysler's labor unions, according to the proposal letter. Yesterday a labor leader said he saw no difference between Kerkorian and other private-equity shops that have expressed interest in the carmaker. If his bid is accepted, Kerkorian would make Chrysler a private company.
"He is the classic example of what I have been arguing against: a private-equity firm that has made billions by buying low, cutting, slashing and selling high -- making a lot of money at the expense of workers, families and communities," said Buzz Hargrove, president of the Canadian Auto Workers. "He will not have our support."
Kerkorian's proposal hinted at further cuts at Chrysler, which, according to analyst David B. Healy of Burnham Securities, has about $55 billion in unfunded pension and health-care liabilities. Tracinda said it would give union workers a "substantial" stake in Chrysler as part of "finding a solution to ever-rising health-care costs."
The offer did not mention Kerkorian by name and was accompanied only by a letter from Jerome B. York, a former chief financial officer at Chrysler, who has been working as an adviser at Tracinda. But the proposal had Kerkorian's fingerprints all over it.
It also renews the financier's long and acrimonious relationship with Detroit's auto industry. Last year, Kerkorian failed in an effort to drastically reshape General Motors. He bought nearly 10 percent of the company and pushed for GM to join a business alliance with Nissan and Renault. But after losing a boardroom showdown with GM Chairman G. Richard Wagoner Jr., Kerkorian dismantled his stake.
Twelve years ago, Kerkorian made a surprise $22.8 billion bid for Chrysler that was spurned by management. But its executives, feeling vulnerable to corporate predators like Kerkorian, agreed in 1998 to merge with Germany's DaimlerBenz for more than $35 billion. Kerkorian made more than $3 billion from the deal.