Kerkorian’s Attempt to Buy Chrysler Looks Dead, Analysts Say : Automobiles: The company’s stock fell another 5.7% as doubts spread about his ability to finance the megadeal.
The bid by financier Kirk Kerkorian to take over Chrysler Corp.--a proposed $22.8-billion deal that stunned Wall Street and would have been the second-largest acquisition in American history--appears all but dead, automotive industry analysts and merger specialists said Wednesday.
Chrysler’s stock continued to fall--dropping 5.7% Wednesday--amid persistent doubts about Kerkorian’s ability to raise the needed financing. Kerkorian’s $55-a-share offer is “finished,” said Maryann N. Keller, a respected financial analyst for Furman Selz in New York.
“If somebody came up with a $55-a-share, financially viable bid, they are entitled to make an offer,” Keller said. “But Kirk clearly didn’t have the financing and didn’t have the strategic partner that he claimed he had.”
Chrysler shares slumped $2.50 to close Wednesday at $41.625 on the New York Stock Exchange, only slightly higher than it was before the bid was unveiled. The stock soared as high as $52.50 on April 12, the day Kerkorian’s Tracinda Corp. unveiled the offer.
However, the stock closed that day at $48.75 and has been sliding ever since because investors have increasingly doubted whether Kerkorian had the financial backing--or the desire--to consummate the deal.
Chrysler’s board of directors officially spurned the deal earlier this week and Kerkorian, who owns a 10% stake in the company, does not appear to have the legal ground to force the auto maker to put his offer to a stockholder vote, as he requested on Tuesday.
Kerkorian, who also asked that shareholders vote on a dividend increase to $5 a share from $1.60, missed the deadlines to put the proposals to a vote at the company’s May 18 annual meeting.
Kerkorian, whose investment group included former Chrysler Chairman Lee A. Iacocca, has not said what he would do if Chrysler failed to put the proposals to a shareholder vote.
The Las Vegas billionaire could try to persuade other major Chrysler shareholders to put pressure on the company to reconsider his proposals, said attorney and merger specialist John Olson in the Washington office of Gibson, Dunn & Crutcher. But Olson doubts Kerkorian will have much luck, given his performance so far.
“He has not followed through with any proposal or any evidence of financing,” Olson said. “The next time he says something . . . people will be more skeptical. It makes him less of a credible threat the next time around.”
Chrysler Chairman Robert J. Eaton on Wednesday once again dismissed Kerkorian’s takeover plan, which would have required the company to use most of its $7.5 billion in cash to finance the deal.
“Chrysler’s Board of Directors and its management have made it clear that your leveraged buyout proposal is not in the best interests of Chrysler and its constituents,” said Eaton in a letter to Kerkorian. “We see no need, therefore, to elaborate on the Board’s decision as it clearly responds to your proposals.”
Kerkorian was not available for comment.
On Wall Street, investors may continue to drive down the value of Chrysler’s stock as they increasingly focus on Chrysler’s deteriorating profit outlook, said automotive industry analyst Joseph Phillippi at Lehman Bros.
Kerkorian “can continue to be a serious gadfly. They could give him a board seat,” said Phillippi. But “what’s going to happen, unless there is significant news, is that the market is going to refocus its attention on earnings estimates for the company that have fallen dramatically. The stock is still overvalued in the near-term basis.”
Kerkorian’s experience may also serve as a warning to other potential raiders looking for a fast buck by threatening a takeover without substantial backing, said finance professor E. Han Kim at the University of Michigan.
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Market Signal?
Chrysler stock fell $2.50 today in part because of what investors see as Kirk Kerkorian’s inability to carry out his takeover bid. Daily closes since April 3:
April 3: $42.125
April 12: Takeover bid announced
April 26: $41.625
Source: TradeLine
