Kerkorian Demands 3 Board Seats at Chrysler : Autos: Company’s biggest shareholder also seeks changes in anti-takeover defenses and external review of cash cushion.
Ratcheting up the pressure a notch, investor Kirk Kerkorian on Wednesday demanded three seats on the board of Chrysler Corp., an easing of the company’s anti-takeover defenses and an outside study of its cash needs.
Chrysler called the proposals from its largest shareholder “predictable” but said directors will seriously consider any suggestions meant to build the long-term value of the company.
At the same time, the company dismissed the requests for board representation and relaxation of its “poison pill” defenses because they “relate to control issues” and not enhancing the stock price.
“These are just a way for him to gain a creeping control, which has been Kerkorian’s modus operandi in the past,” a Chrysler spokesman said.
The proposals were made by Jerome York, vice chairman of Kerkorian’s Tracinda Corp., in a 2 1/2-hour meeting in suburban Detroit with Gary Valade, Chrysler’s chief financial officer, and William O’Brien, its general counsel.
Chrysler’s board is scheduled to meet Nov. 2. If it rejects the demands as expected, it might set the stage for a proxy contest in which Kerkorian could seek approval of his proposals directly from shareholders.
York struck a conciliatory but firm tone in a letter sent Wednesday to Robert Eaton, Chrysler’s chairman and chief executive, and filed with the Securities and Exchange Commission,.
“As you know, we currently have no intention to acquire Chrysler,” York wrote. “We intend to remain focused on enhancing long-term value for all Chrysler shareholders; we will not be deterred from that objective.”
Kerkorian, a Las Vegas casino and hotel operator, launched a hostile $22.8-billion bid for Chrysler in April. His partners included former Chrysler Chairman Lee Iacocca. But the buyout faltered for a lack of financing.
The billionaire investor has continued to buy Chrysler shares and now holds a 14.1% stake. He has continued to urge the company to raise its dividend, buy back stock and take other steps to drive up the share price.
With the recent hiring of York, Chrysler’s former chief financial officer under Iacocca, Kerkorian intensified pressure by raising questions about the auto maker’s product quality, financial strategy and corporate policies.
Much of what Kerkorian requested Wednesday had long been anticipated. The most important proposal is the appointment of York to the board, along with two other unnamed people to be agreed upon by Chrysler and Tracinda.
In recent weeks, Chrysler executives have openly opposed granting Kerkorian any board seats. Eaton said Oct. 3 that Chrysler would “resist any attempt to create ‘fractional constituencies’ on our board.”
Kerkorian also requested the appointment of a committee of Chrysler’s outside directors to review the appropriate size of Chrysler’s cash cushion. York maintains that Chrysler’s goal of having $7.5 billion to ride out the next recession is as much as 40% too high.
Finally, Kerkorian asked that the company review its corporate governance policies and undertake three actions:
* Adoption of an anti-greenmail provision, prohibiting the company from paying a premium above the market stock price to any shareholder.
* Require shareholder approval for the sale of significant amounts of “bank check” preferred stock, which now allows Chrysler’s board to put more shares in friendly hands without getting stockholder approval.
* Raise the poison-pill threshold to 20% from 15%. This anti-takeover provision dilutes the holdings of any stockholder who breaches the threshold by granting other shareholders the right to buy stock at a reduced price.
