Money Manager TCW Caught Up in Chrysler Feud
If Kirk Kerkorian’s tottering buyout bid for Chrysler Corp. fails, it may hurt more than his own image: He got the idea from Robert A. Day, one of Los Angeles’ largest institutional money managers and a major--and unhappy--Chrysler shareholder.
Day, founder and chairman of $48-billion-asset Trust Co. of the West, is said to have suggested the concept of a Chrysler leveraged buyout to Kerkorian last fall, via LBO expert and financier Gary Wilson.
An account of Day’s role in providing the seed of the idea first appeared in the Wall Street Journal on Wednesday. As a rule, the secretive, 47-year-old Day never talks to the press, but a TCW spokesman said the company doesn’t dispute the account of Day’s involvement.
TCW, which owned 7.5 million Chrysler shares worth $372 million at the end of last year--making it the firm’s second-largest share holding, after Viacom Inc.--has had no part in fashioning Kerkorian’s bid, the TCW spokesman said. “Where Kerkorian or Wilson go on this, they go of their own accord,” the spokesman said.
For his part, Kerkorian contends that Chrysler executives as recently as March told him that an LBO was “intriguing” and “doable,” suggesting that management had at least initially liked Day’s idea--even though the official Chrysler response has been vehement opposition since Kerkorian announced his bid April 12.
But TCW’s potential public-relations problem now is that it appears irrevocably tied to an LBO proposal, and thus publicly antagonistic toward Chrysler management.
In the annals of shareholder activism, that is an unusual role for a private money manager--especially one like TCW, which manages pension funds and other monies for a long list of blue-chip corporate clients, including Chrysler itself.
Public funds--such as the California Public Employees Retirement System, or CalPERS--have a long history of shareholder activism, of course. But when they attempt to change a company’s direction in order to boost the stock price, public funds have little to lose: The money they’re investing is from government employees, and it can’t leave the funds.
Private money managers like TCW, on the other hand, “have a number of corporate ties they don’t want to jeopardize,” notes Anne Hansen, deputy director of the Council of Institutional Investors, a group representing 100 major public pension funds.
The risk for a private money manager in attempting to force a company into a decision it doesn’t want to make is that other corporations that invest with the manager may view the attack with disdain and unease. They could easily take their pension accounts elsewhere.
That is why, Hansen says, “When private money managers get involved (in an activist role), you usually don’t see it. It’s extremely subtle and rarely publicized.”
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The revelation that TCW’s Day had actively promoted the Chrysler LBO idea raised more than a few eyebrows among other money managers this week, public and private. At the very least, TCW’s involvement is potentially awkward for the firm, some money managers say. “I definitely had that thought,” said Dale Hanson, a principal at American Partners Capital Group and former chief executive of CalPERS.
TCW’s image has already suffered tarnish this year on other fronts. Under Day, the firm mushroomed in size in the early ‘90s and gained international acclaim for its stock and bond investing prowess. But this year, TCW’s huge Latin American stock and bond portfolio has been savaged by Mexico’s financial crisis, its stumbling real estate investment unit has been actively seeking a new partner, and, in March, five key TCW bond managers announced they would leave the firm to form their own company in what became an acrimonious split with Day.
Now, the normally publicity-shy TCW is in a very high-profile position, with the fight between Kerkorian and Chrysler management having degenerated into what may become a proxy battle ahead of the auto maker’s May 18 annual meeting.
TCW, if it backs Kerkorian, will most likely be on the opposite side of many public pension funds. A recent letter to Chrysler from some of the biggest public funds expressed concern about any LBO transaction that could weaken the long-term viability of the company by loading it up with debt.
The letter also warned Chrysler against paying “greenmail” to any individual shareholder in an attempt to make that person go away. Many analysts have speculated that Kerkorian merely wants to have his 10% stake in Chrysler bought back at a premium to the market.
“In effect, we were backing Chrysler’s board in this case” through that letter, said Roland Machold, director of New Jersey’s investment division.
“Kerkorian really doesn’t bring anything to the party,” Machold contends. As for TCW’s apparent interest in supporting an LBO of Chrysler, Machold suggests that TCW may partly be agonizing that it didn’t sell out of its shares near last year’s peak of $63.50. The stock’s current price: $41.875.
“They may feel cheated,” Machold says.
But some TCW insiders say the headstrong Robert Day has long believed that Chrysler should be taken private to realize its full value. “He’s had this opinion for years,” one source says.
Chrysler may be a special case, but the list of TCW’s largest stock holdings at the end of 1994 suggests that Day, who is actively involved in stock picking, believes many major U.S. industrial companies are undervalued in the market.
TCW sharply increased its holdings last year of such giants as Boeing, Caterpillar, Unocal and General Motors’ EDS and Hughes Aircraft units.
Whether TCW would take an activist role with any of those stocks, however, is another question.
At least one rival money manager argued Thursday that Day and TCW ought to be celebrated, not vilified, for raising the LBO issue in Chrysler’s case. “If I weren’t managing money for Chrysler, I would have loved to have been out front on this,” said the manager, requesting anonymity. “It would show that I’m fighting for my clients’ interests by seeking to boost the stock.”
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TCW’s ‘Value’ Plays?
Here are some of the big-name stocks in which Trust Co. of the West significantly raised its stakes during 1994.
Shares owned (millions) Value as of 12/94 12/93 12/94 (millions) Motorola 1.63 4.12 $239 Home Depot 3.18 4.63 213 National Semicon. 5.61 10.39 203 Computer Sciences 1.12 3.87 197 Boeing 0.19 4.02 189 Caterpillar 1.44 3.28 181 Citicorp None 4.02 166 Unocal 1.11 5.98 163 General Motors H 1.69 4.27 149 Generam Motors E 2.14 3.64 140 J.C. Penney None 2.99 134 Ford Motor 1.01 1.82 51
Source: CDA/Spectrum
