Chrysler Retaliates Against Iacocca, Blocks His Options : Autos: Company says former chairman violated rules through his involvement with Kirk Kerkorian.
Chrysler Corp. disclosed Thursday that it will not allow former Chairman Lee A. Iacocca to exercise lucrative stock options because of his involvement in Kirk Kerkorian’s takeover efforts.
Chrysler said it is taking the action because Iacocca violated provisions of its options plan by taking outside employment without the company’s approval and acting in ways that “adversely affect the company.”
The moves dramatize how Iacocca, who twice steered Chrysler out of serious financial troubles, has gone from being a revered figure inside the company to persona non grata within a few short months.
Last week, Iacocca, 70, sought to exercise options for 112,000 Chrysler shares, according to a Chrysler filing made Thursday with the Securities and Exchange Commission. He has options to purchase nearly 1.5 million shares at an average price of $28.22, the company said.
The company’s stock closed at $49.50, up 50 cents, in Thursday trading on the New York Stock Exchange. It is not known what the exercise price is for the 112,000 shares but, based on the average, he could immediately see a gain of $2.4 million.
A Chrysler spokesman said the board is upset with numerous comments that Iacocca has made about Chairman Robert Eaton, including criticism that Eaton has failed to improve product quality, and that Iacocca has continued to support a buyout that was not in the company’s best interest.
A spokeswoman for Iacocca in Los Angeles said he “cannot make any response to this on advice of his attorney.” Jack Nusbaum, Iacocca’s New York-based attorney, was unavailable for comment.
Iacocca was recently retained as an adviser to Tracinda Corp., Kerkorian’s main operating company and the vehicle through which he has acquired 10% of Chrysler’s stock. Iacocca is being paid $500,000 a year as a Tracinda consultant and also stands to earn millions of dollars more if a takeover is successful.
The action is the first formal retaliation that Chrysler has taken against Iacocca since he allied himself with Kerkorian in a $22.8-billion offer on April 12 to acquire the company. Kerkorian, a reclusive Las Vegas billionaire, has pushed the company to take steps to boost its stock price.
Chrysler rejected the hostile bid and Kerkorian withdrew his $55-a-share offer in late May after he was unable to arrange financing. But he also hired an adviser to explore other options, including another buyout effort.
Last week, Kerkorian launched a $700-million tender offer for 14 million Chrysler shares. If successful, that $50-a-share offer will bring his investment in Chrysler to $1.4 billion and his holdings to 13.6% of the outstanding shares.
Iacocca owns 563,000 shares and has options to acquire three times that number at prices ranging between $11.75 and $44.07 a share. If all options were exercised, he would hold about 0.5% of Chrysler’s shares.
The options would be lucrative to Iacocca because the average price he would have to pay is about $21 below current trading value. At current prices, Iacocca could realize a paper profit of $30 million.
Chrysler made the disclosure about Iacocca in an SEC filing made in response to Tracinda’s tender offer. The company said it is taking no position on the tender offer because it will leave the holdings of the Tracinda group below 15%, a level that will trigger its anti-takeover defenses.
But in a letter to stockholders, Eaton said that “what’s good for Mr. Kerkorian and other members of Tracinda’s ‘group’ isn’t necessarily good for Chrysler’s other stockholders.” He also noted that no Chrysler directors or officers would tender shares to Kerkorian.
Stephen Silbert, an attorney for Kerkorian and Tracinda, said he is pleased that Chrysler would allow shareholders to make their own decision regarding the tender offer.
“However, we are disappointed with the tone of Mr. Eaton’s comments,” he said.
