In a move that stunned the business world, billionaire Kirk Kerkorian and former Chrysler chairman Lee Iacocca made an audacious $22.8 billion bid to buy the nation’s No. 3 automaker. Hours later, the company said it wasn’t for sale.
“We don’t want to put Chrysler at risk,” Chairman Robert J. Eaton said in a statement after the directors met to consider an unsolicited proposal of $55 a share from Iacocca and Kerkorian, the company’s largest shareholder.
“We’ve worked hard to build this company’s financial strength, to increase shareholder value and to build the confidence of customers. We have no desire to reverse the process.”
The proposal by Kerkorian’s Las Vegas-based Tracinda Corp, which was 40 percent above Chrysler’s Tuesday closing stock price, was the biggest and most daring takeover gambit since the 1980s heyday of hostile corporate raiding.
Before Chrysler rejected the offer, Tracinda executive Alex Yemenidjian disputed the idea that the takeover attempt was hostile.
“It certainly is not hostile to the shareholders, who own the company and who are going to make a bundle of money,” Yemenidjian said in a telephone news conference.
Kerkorian wants Chrysler managers, including Eaton, to stay on and have a stake in the company.
In December, the reclusive Kerkorian, who owns a 10 percent stake in the company, pushed Chrysler’s board to increase the stock dividend and buy back shares to push up the price. He also got Chrysler’s board to relax its anti-takeover measures.
Kerkorian, who made his fortune in Las Vegas casinos and Hollywood studios, contends that Chrysler’s 1994 cash surplus of $7.5 billion is too big and the company’s stock price is too low. Chrysler finished last year with a record $3.7 billion profit, and managers say they need the reserve to weather the next industry downturn.
Under the takeover proposed Wednesday, Kerkorian would put up $2 billion of his own money.
About $50 million would come from Iacocca, the corporate icon who retired as chairman in 1992 after bringing Chrysler back from bankruptcy’s brink. Other investors would add $3 billion more.
An additional $5.5 billion would come from Chrysler’s cash surplus and the rest from bank loans and bonds, Yemenidjian said. Terms of the proposed deal were expected to be worked out within 60 days.
In rejecting the offer, Chrysler noted that no financing had been lined up and the deal would deplete its cash reserves.
“I want to make absolutely clear that Chrysler management is in no way involved with Tracinda’s proposal,” Eaton said in a statement, adding that the board still planned to review the proposal with the company’s legal and financial advisers.
Meanwhile, 28 lawsuits were filed in Delaware, where the corporation is registered, seeking to block Chrysler from accepting the buyout offer. The suits were by shareholders who claimed the company would be breaching its financial responsibility unless it got a price higher than the $55 a share offered by Kerkorian.
The proposal sent Chrysler shares shooting up in heavy New York Stock Exchange trading. But they closed only $9.50 higher at $48.75, well below the takeover price, reflecting plenty of skepticism about the proposed deal.
“It kind of sends goose bumps up your back,” Houston Chrysler dealer Alan Helfman said. “Especially if you get Lee Iacocca back, doing commercials. .th.th. It’s kind of like George Foreman coming back.”
Kerkorian owns 73 percent of hotel and gaming company MGM Grand Inc. and 5 percent of Viacom Inc., an entertainment conglomerate.
A Chrysler shareholder since 1990, Kerkorian became a fan of Iacocca, who helped persuade the government to issue more than $1 billion in loan guarantees to save Chrysler from bankruptcy in the early 1980s.
Iacocca, 70, said he’s not interested in managing Chrysler again. He would act as an adviser to Kerkorian and the company.
MEMO: This sidebar appeared with the story: What Chrysler takeover could mean The possible impact of the Kerkorian-Iacocca offer for Chrysler: Shareholders. Chrysler stockholders will receive $55 a share in cash under terms of the deal, about 40 percent above Tuesday’s closing stock price. Chrysler has about 415 million shares of common stock. Kerkorian owns about 10 percent. Workers. Kerkorian’s Tracinda Corp. said that there were no plans for job cuts or worker concessions, and that some kind of ownership participation program was under consideration. However, a takeover by investors seeking better stock value may result in cost-cutting. Car owners. It’s not known how a successful takeover would affect Chrysler’s cars. The company has had some stumbles lately. It agreed recently to replace rear liftgate latches on more than 4 million minivans after the government began studying whether they failed in some crashes. The automaker’s models also received poor quality ratings in a recent Consumer Reports magazine article.
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