Suit Seeks to Undo Daimler-Chrysler Merger

DaimlerChrysler’s troubles over its U.S. subsidiary deepened Monday as Kirk Kerkorian, the company’s third-largest shareholder, filed a $9-billion securities fraud suit against the German auto maker and its top managers, accusing them of lying about their intent in acquiring Chrysler Corp. in 1998.

The suit by Kerkorian’s Los Angeles-based Tracinda Corp., filed Monday in U.S. District Court in Delaware, also seeks the unusual remedy of a court order to undo the $34-billion merger of Chrysler and Germany’s Daimler-Benz.

The suit also reveals that the billionaire investor has lost about $1 billion as DaimlerChrysler’s stock has plunged since the merger.

In the last few months, the company’s U.S.-based Chrysler unit posted a third-quarter loss of $512 million, temporarily shut down several plants to cut production and acknowledged that more losses are coming--stemming largely from the cost of incentives used to push an aging lineup of cars and trucks.

DaimlerChrysler is replacing many of Chrysler’s top U.S. managers with executives from Germany and has promised a major restructuring of the U.S. operation after the first of the year.

Tracinda claims in the suit that Kerkorian--who was Chrysler’s largest shareholder at the time--was tricked into supporting what he was told by Daimler executives would be a merger of equals.

DaimlerChrysler Chairman Juergen Schrempp was quoted in the Financial Times on Oct. 30 as saying he never intended the deal to be a merger of equals but secretly sought to make Chrysler a division of the German firm.

Tracinda could not have blocked the merger by itself, but Kerkorian’s decision to vote his investment company’s 13.75% of Chrysler’s stock in favor of the deal tipped the scales, said Tracinda attorney Terry Christensen.

DaimlerChrysler issued a statement Monday saying that while it had not yet received a copy of the suit, “the allegations appear to be completely without merit.”

Kerkorian made his own run at Chrysler in an unsuccessful 1995 takeover bid that left him with a block of stock and a board seat.

Christensen said Kerkorian isn’t suing merely to force DaimlerChrysler to buy back his stock at a premium. Kerkorian seeks at least $2 billion in actual damages, $1 billion to recover the value of Tracinda’s 4% block of DaimlerChrysler shares lost since the merger and punitive damages of at least $6 billion.

DaimlerChrysler shares rose $1.02 to $41.25 on the New York Stock Exchange on Monday.