Letter Hints of Possible Change at Chrysler : Autos: Chairman tells stockholders that ‘excess’ cash may be used to pay higher dividends or buy back stock.
His name isn’t mentioned, but billionaire investor Kirk Kerkorian lurks between the lines of a letter sent to stockholders Wednesday by Chrysler Corp. Chairman Robert J. Eaton.
In it, Eaton raises the possibility that Chrysler will use “excess” cash to pay higher dividends or buy back stock--a course the company suggested last week when it confirmed its rejection of Kerkorian’s $22.8-billion buyout proposal.
The letter, filed with the Securities and Exchange Commission, defends Chrysler’s strategy of keeping huge cash reserves as a cushion for the next downturn in the auto industry. Kerkorian wants to tap that cash to help finance the buyout.
On April 12, Kerkorian--Chrysler’s largest shareholder--proposed buying the 90% of the company he does not already own. He has said he wants a greater return on his investment, now worth about $1.5 billion.
Chrysler responded that the company was not for sale, and news releases volleyed between the two sides as Wall Street tried to figure out if Kerkorian could succeed. Kerkorian appears to be at an impasse, unable to line up financial backing, primarily because of Chrysler’s vigorous objection to the proposal.
“There has been a great deal of publicity recently about your company and its plans for the future,” Eaton wrote in the letter, in which he told stockholders that Chrysler’s board is committed to building value for them.
The letter also reminds shareholders to sign and return their proxy cards, the documents that give their voting power to Chrysler board members at the May 18 shareholder meeting.
Kerkorian’s Las Vegas-based Tracinda Corp. confirmed last week that it has hired a proxy solicitation firm, raising speculation that he may try to battle Chrysler directors for control of the company.
The Detroit News reported Wednesday that Chrysler is willing to buy Kerkorian’s 10% stake in the company, but not at a premium over the market price.
The auto maker’s position emerged during informal talks between attorneys for both camps, initiated by Kerkorian representatives late last week in New York, the newspaper said.
A Chrysler spokesman had no comment Wednesday on the report.
Alex Yemenidjian, Kerkorian’s top financial adviser, told the News that any stock buyback limited to Kerkorian would be considered greenmail, an illegal premium or special deal made to buy off a corporate raider.
“Kirk Kerkorian will not accept greenmail under any circumstances,” Yemenidjian said.
Chrysler stock rose to $48.75 from $39.25 a share after the takeover bid was announced, but it has fallen since. It closed up 25 cents Wednesday at $42.25.
