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Takeover Experts Say Chrysler Buyout Risky Kerkorian’s $22.8 Billion Bid Called A Misguided Attempt

Stock investors backed away Thursday from their initial enthusiasm for a bold buyout of Chrysler Corp. by billionaire Kirk Kerkorian and the automaker’s flamboyant former chairman, Lee Iacocca.

Chrysler shares fell 87 cents on the New York Stock Exchange to $47.87, with more than 12 million shares traded. The pace of transactions, although much higher than normal, was far from the frenzy of a day earlier, when 34.9 million shares traded hands and the price rose $9.50 to close at $48.75.

There was no word from the Las Vegas offices of Kerkorian’s Tracinda Corp., which offered $55 a share Wednesday for the 90 percent of Chrysler that Kerkorian doesn’t already own. But Chrysler Chairman Robert J. Eaton amplified the company’s late Wednesday statement that it’s not for sale.

“We have never been out shopping this company, and I don’t want anyone to believe that there is a forsale sign on the front,” he told a news conference after the company reported first-quarter earnings of $592 million, down 37 percent from a year earlier.

Eaton attributed the weakness to slow spring sales, heavy spending on its new minivans and the impact of Mexico’s financial disaster on Chrysler operations there. In addition, earnings were reduced by $114 million set aside to cover the cost of replacing liftgate latches on up to 4.5 million minivans.

Automotive experts and analysts said Kerkorian’s $22.8 billion proposal might be misguided, if he really wants to end up owning the nation’s third-largest automaker.

“I would be surprised and a bit worried if the deal got done as currently structured, because it’s not the right business for an LBO (leveraged buyout),” said Steven Kaplan, a professor of finance at the University of Chicago who specializes in corporate governance and leveraged buyouts - takeovers that are financed with borrowed money.

“Where an LBO works best is in a company where for years, you’ve had a lot of fat,” Kaplan said.

“They would have to be racing to pay off a good chunk of the debt before you hit a downturn,” he said. Kaplan said industries with stiff competition and pronounced boom-andbust cycles are risky candidates for such buyouts.