Testimony Bolsters Daimler Defense

Former Chrysler Corp. executive Gary Valade testified Tuesday that he would have backed the automaker’s 1998 merger with Daimler-Benz as a good deal for Chrysler investors even if he had learned that Daimler had planned it as a takeover.

“I believe it was the most beneficial deal to shareholders by a long shot,” Valade, Chrysler’s former chief financial officer, told U.S. District Judge Joseph J. Farnan Jr.

The testimony bolsters DaimlerChrysler’s defense against a fraud lawsuit by billionaire investor Kirk Kerkorian, who claims that Chrysler shareholders were shortchanged in the combination that produced the world’s fifth-largest automaker. Kerkorian alleges that the German automaker cheated investors by disguising the Chrysler acquisition as a merger of equals.

Farnan halted the trial Dec. 16, after DaimlerChrysler’s lawyers acknowledged that they had failed to turn over some of Valade’s notes about merger negotiations to Kerkorian’s attorneys. The judge, who is hearing the case without a jury, allowed the trial to resume yesterday.

Kerkorian, once Chrysler’s largest shareholder, is seeking $3 billion in damages for stock losses stemming from the $36-billion combination, which hasn’t boosted returns as predicted. Kerkorian contends that he’d have sought a higher price if he’d known that former Daimler-Benz executives would hold most top jobs and effectively control the firm within five years.

DaimlerChrysler won a judge’s approval Feb. 5 to pay $300 million to settle fraud claims by other investors. Kerkorian refused to join the class-action accord.

DaimlerChrysler’s shares have fallen by about half since the November 1998 merger. The Stuttgart-based automaker said Kerkorian, who made $2.7 billion on the transaction, wanted a scapegoat because the shares he retained tumbled in value.

DaimlerChrysler’s U.S. shares rose 56 cents to close at $47.40 on the New York Stock Exchange on Tuesday.

On the witness stand Tuesday, Valade said he didn’t feel “snookered” when he read a 2000 interview of DaimlerChrysler Chief Executive Juergen Schrempp by the Financial Times in which Schrempp was quoted as saying he always intended to control Chrysler.

“We had to go a roundabout way, but it had to be done for psychological reasons,” Schrempp was quoted as saying. During his testimony in the case, Schrempp said the newspaper’s reporters misunderstood him. He acknowledged that he never sought a correction on the story.

Assuming the quotes were accurate and he’d learned about the alleged takeover plan before the combination was consummated, Valade said, he still would have recommended that Chrysler’s board approve the merger.

“I think it was the right strategy and long-term move for both Chrysler and Daimler-Benz,” he said. “That article would not cause me to change the approach I took.”

Chrysler investors got shares worth $57.50 each as part of the combination, a 28% premium at the time, Valade said.

“That was a great deal for the shareholders,” given the prices at which Chrysler stock had been trading, he noted.