Kerkorian Will Seek to Double His Investment in Chrysler : Autos: $700-million tender offer is seen as attempt by company’s No. 1 stockholder to influence strategic planning.
Four weeks after abandoning a hostile takeover bid for Chrysler Corp., investor Kirk Kerkorian said Monday that he will launch a $700-million tender offer for 14 million shares of the auto maker’s stock.
If completed, the $50-a-share offer would double Kerkorian’s investment in Chrysler to $1.4 billion and increase his stock holdings from 10% to 13.6% of the company’s 369 million outstanding shares.
Kerkorian, 77, and his 70-year-old partner, former Chrysler Chairman Lee Iacocca, unsuccessfully tried in April to acquire the entire company for $55 a share, or $22.8 billion.
The latest move by Kerkorian--already Chrysler’s largest shareholder with 36 million shares--is seen as an attempt to keep pressure on the auto maker to increase the stock’s value. But merger experts said it is unlikely to have any substantive effect on the No. 3 auto maker.
“I don’t think this will have a major effect on the company or its stock price,” said Stephen Willard, a mergers and acquisition attorney with Gibson, Dunn & Crutcher in Washington.
Michael Bradley, a finance professor at the University of Michigan, said the tender offer is an attempt by Kerkorian to reassert himself as a factor in Chrysler’s strategic planning.
“He’s reminding them that he is still there and thinks the stock price is too low,” Bradley said.
Kerkorian is offering to buy the additional stock at a modest 5% premium above Friday’s $47.625 closing price. On Monday, the stock closed at $47.375, down 25 cents, in heavy trading on the New York Stock Exchange.
“The market is shrugging it off,” said Nicholas Loboccaro, an analyst at S.G. Warburg in New York.
If successful, the tender offer would bring Kerkorian’s holdings close to the 15% threshold that would trigger Chrysler’s “poison pill,” an anti-takeover measure that dilutes the value of shares of a hostile buyer.
Kerkorian, who controls the MGM Grand Hotel & Casino, is acquiring the shares through his Las Vegas-based Tracinda Corp. “We think that Chrysler is an attractive investment at this point,” said Stephen Silbert, an attorney for Tracinda and Kerkorian.
Chrysler said it will have no comment until Tracinda formally begins the tender offer and files documents with the Securities and Exchange Commission.
“We honestly don’t know what he is doing,” a Chrysler spokesman said. “He could buy these shares in the open market. It looks like he wants to keep the ball in play, to keep the pressure on.”
The offer is conditioned on Tracinda obtaining relief from a state statute that gives the Michigan Insurance Bureau regulatory oversight on the purchase of more than 10% of the stock of companies engaged in insurance. Chrysler has two small insurance operations that service its car dealers.
Tracinda filed suit in federal court Monday challenging the state insurance agency’s authority to regulate Tracinda’s purchase of additional Chrysler shares.
The tender offer is the first public action taken by Kerkorian since he withdrew his takeover offer May 31. At the same time, he hired Wasserstein Perella & Co., a New York investment banker, to be his strategic adviser.
At the time, Kerkorian’s advisers said the withdrawal did not mean an end to the takeover struggle. Rather, Kerkorian would look for other alternatives and fresh approaches to achieve his goals, they said.
In a telephone interview, Silbert said the tender offer is not a precursor to a new buyout bid. But the company is keeping all its options open, he said, including the possibility of seeking control in the future.
The initial takeover collapsed largely because Kerkorian was unable to attract financial backing. He proposed using about $5 billion in Chrysler cash and raising about $12 billion in debt to finance the deal.
Tracinda said financing is in place for the tender offer. Silbert said the company can tap a line of credit through Bank of America and may also use some internal Tracinda funds.
