Billionaire Kirk Kerkorian dropped his hostile bid to buy Chrysler Corp. Wednesday but made it clear that he would keep pressing to raise the value of his 10 percent stake in the company.
Kerkorian proposed buying the 90 percent of Chrysler he doesn’t own in April in a stunning $22.8 billion, $55-a-share deal that would have been the second-biggest corporate takeover in U.S. history.
But the proposal languished after Chrysler rejected it and Kerkorian was unable to line up lenders or other big investors.
“Withdrawing our offer will permit us to take a fresh look at the situation and evaluate our alternatives,” Alex Yemenidjian, an executive at Kerkorian’s Tracinda Corp., said in a statement.
People close to Tracinda who spoke on condition of anonymity stressed Wednesday that Kerkorian is not going away and that a takeover has not been ruled out. The deal included backing from former Chrysler Chairman Lee Iacocca.
“We’re going to keep coming up with ideas,” one said. “We are still very serious … and very much resolved to find a way to get the value of Chrysler shares improved.”
Tracinda also said its 36 million shares of Chrysler stock, currently worth $1.5 billion, are not for sale. Tracinda said it had hired the investment bankers Wasserstein Perella & Co. to help it consider options.
Many on Wall Street theorized that Kerkorian’s aim was to have the company buy him out to prevent a takeover, a move known as paying “greenmail.” Kerkorian has insisted all along that he wasn’t interested in selling his stake.
The furor that followed the April 12 takeover proposal has raised share prices to an extent.
On April 11, Chrysler shares closed at $39.25. On Wednesday afternoon, they were trading at $43.12. That’s a gain of 8.6 percent since the announcement, while the market, as measured by the Standard & Poor’s 500 index, has risen 3.6 percent.
Part of the gain probably is due to a 10-cents-a-share dividend increase Chrysler announced May 18. The company also raised its dividend in December and announced it would buy back $1 billion in stock after Kerkorian demanded it takes steps to boost the stock price. Chrysler dividends, now $2 a share, pay Kerkorian $72 million a year.
But that isn’t enough for Kerkorian.
“Tracinda would be satisfied at any time Chrysler stock was at a value truly reflective of the value of the company,” the Tracinda source said. “I think everybody would be very pleased if the stock traded at $55, because that’s what we think the stock is worth.”
Chrysler has come back from two brushes with bankruptcy since 1980 to become the U.S. auto industry’s most efficient producer of cars and trucks. Its 1994 profits were a record $3.7 billion.
But Kerkorian does not believe the market will take the stock to the $55 level because investors don’t like the idea of Chrysler’s $7.3 billion cash reserve - money the company says it needs to weather the next recession without gutting its new product programs.
Kerkorian wanted to dip into the reserve as part of his buyout proposal - a suggestion that incensed Chrysler’s leaders.
Kerkorian isn’t the only one dissatisfied with Wall Street’s unwillingness to place a higher price on its stock, which peaked at $62.50 in early 1994.
“To say that we’ve been disappointed and frustrated over the past year is an understatement,” Chrysler Chairman Robert J. Eaton said at the company’s annual meeting last month.
He also said Kerkorian had been “a very disruptive force” in the company and that he was disappointed with Iacocca’s involvement in the proposal.
Chrysler had no comment Wednesday on the Tracinda announcement. Iacocca was traveling in Europe and could not be reached, his office said.
Tracinda officials would not discuss the options they were considering. Kerkorian could now try to round up additional investors - perhaps foreign auto companies - to make a takeover bid.