Major Public Pension Funds Give Backing to Chrysler Management : Autos: The 18-member group, which includes CalPERS, says it opposes Kerkorian’s $22.8-billion takeover bid.
Opposition to Kirk Kerkorian’s $22.8-billion gambit to acquire Chrysler Corp. mounted Tuesday when 18 major public pension funds expressed support for the company’s management.
The Council of Institutional Investors, a Washington-based organization that represents public pension funds nationwide, sent a letter to Chrysler’s board indicating opposition to Kerkorian’s $55-a-share offer.
The letter was endorsed by the group’s largest pension funds, including the California Public Employees Retirement System and the California State Teachers Retirement System.
“It reminds the board that there are some investors who are in for the long term,” said Richard Koppes, general counsel of CalPERS, the nation’s largest pension fund, with $80 billion in assets. “We really applaud what Chrysler’s management is doing.” CalPERS owns 1.8 million Chrysler shares.
On another front, Douglas Roberts, the Michigan state treasurer who oversees four public pension funds that own 2% of Chrysler stock, said he strongly opposes Kerkorian’s takeover proposal.
The statements from the pension fund managers were welcomed by Chrysler, which rejected the proposal last week but said its board would evaluate a formal bid if Kerkorian obtained financing.
“They agree with us that the company should not be for sale,” Chrysler spokesman Steve Harris said.
Institutional investors, which include money managers, pension funds and insurance companies, are key players in the takeover battle for the nation’s No. 3 auto maker. But no clear consensus has emerged on how they view Kerkorian’s proposal, which stunned the auto industry when it was announced a week ago.
While many public pension managers are expressing concern, other institutional investors argue that Chrysler’s stock is woefully undervalued and say they support efforts to drive the price up.
“Where a man makes a bid of $55, I would have to give it serious consideration,” said Seth Glinkenhaus, head of Glinkenhaus & Co., an investment fund manager that controls 5.3 million Chrysler shares. “I’m not saying I would accept his bid or align with him. I think the stock is worth more than $70.”
Kerkorian could not be reached for comment. But a spokesman for Tracinda Corp., Kerkorian’s Las Vegas-based operating company, said there is a “fundamental base of support” for the offer because major investors believe the stock is valued too low.
Chrysler stock, which peaked at $63.50 last year, was selling at $39.25 before Kerkorian’s offer. It closed Tuesday at $46.75, down $1.25 in trading on the New York Stock Exchange.
The deal Kerkorian has proposed is sketchy. It calls for using $5 billion in investor equity, $5.5 billion of Chrysler funds and more than $12 billion in loans.
Kerkorian, whose wealth is estimated at about $3 billion, is being supported by former Chrysler Chairman Lee Iacocca. The pair will put no new money into the deal but pledge stock they now hold, which is worth a little more than $2 billion at the takeover price.
Because Kerkorian has not obtained financing or outlined a strategic plan for the company, many investors believe he is simply trying to drive up Chrysler’s stock price. Some speculate he is seeking to have Chrysler buy out his stock at a premium above the market price--a tactic known as “greenmail”--or hoping that another bidder emerges offering a higher price.
The pension group was originally organized in an effort to counteract greenmail payments to corporate raiders made by some large corporations in the 1980s.
“We do not encourage actions . . . that use current or future shareholder money to buy out or pay off individual shareholders with short-term goals,” the group said in its letter. Anne Hansen, deputy director of the pension group, estimated that the group owns as much as 10% of Chrysler’s shares.
It did not mention Kerkorian by name but clearly stated its opposition to Kerkorian’s desire to use 75% of Chrysler’s $7.3-billion cash reserve to help fund his acquisition. The company said it needs the fund to make it through the next economic slump.
“We don’t want the management to do anything rash, anything that would destroy the company for a short-term gain,” Hansen said.
In addition to the two California funds, public employee pension funds in New York City and in New Jersey, Pennsylvania and Maryland endorsed the letter.
In Michigan, Roberts sharply criticized Kerkorian’s bid, particularly his proposal to raid the company’s cash kitty. “It is prudent to have that cash reserve for the next downturn,” he said.
He is all too familiar with Chrysler’s booms and busts. Roberts was the state’s deputy budget director 15 years ago when the auto maker needed government loans to survive.
