Takeover Bid by Kerkorian Turned Down by Chrysler
In a sharp rebuke to billionaire casino chief Kirk Kerkorian, Chrysler Corp. formally rejected his buy-out proposal Monday, asserting it would strip the auto maker of its rainy-day cash fund and ultimately leave it crippled.
Chrysler Chairman Robert J. Eaton, outlining the board of directors’ opposition, said that Kerkorian’s approach did not even amount to a proposal but rather only “an invitation to Chrysler to join you (Kerkorian) in a search to see if financing might be available for a transaction.”
Eaton went on to say that Kerkorian had not lined up any financing beyond what he suggested tapping at Chrysler itself and that the board has “grave doubts” about the feasibility of lining up outside investors.
“It seems like tough language,” said Joseph Phillippi, auto analyst at Lehman Bros. in New York. “The board has rejected it out of hand.”
Kerkorian, a savvy investor operating through his Las Vegas-based Tracinda Corp., proposed on April 12 that he would pay $55 per share for the 90% of Chrysler stock he does not already own. Lee Iacocca, former Chrysler chairman, joined with Kerkorian in the offer.
The plan included using $5.5 billion out of Chrysler’s $7.3-billion cash horde, money that Eaton said Monday is being retained to weather the industry’s next downturn. At $55 per share, the deal would amount to $22.8 billion, requiring Kerkorian to borrow roughly $12 billion.
Chrysler’s stock leaped from less than $40 per share to more than $52 when Kerkorian disclosed his plan, but even before the close of trading on the first day the shares settled back down to around $48.
Since then, the shares have eroded further and lost another 62.5 cents to close on the New York Stock Exchange at $44.50 on Monday.
Tracinda Corp. said only that it was “very disappointed” by Chrysler’s response.
Maryann Keller, auto analyst at New York-based Furman Selz, said she expects Chrysler shares to continue to fall unless Kerkorian comes forward in the next several days with a plausible plan for financing a takeover.
Chrysler shares are also under intense pressure based purely on the firm’s business outlook, Keller added. It is losing market share in its key minivan and sport utility segments, which will result in lower profit margins this year.
Phillippi also noted that Chrysler is losing production of about 300 minivans a day because a key supplier of engine cradles is having production problems. “That hurts a lot,” he said.
Although Kerkorian’s proposal is fast losing credibility among investors, Chrysler is also coming under pressure from other shareholders to take steps to increase investment returns.
The firm late last year increased its dividend and agreed to a share repurchase, in response to pressure from Kerkorian, but the impact on the firm’s stock was short-lived.
