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A Chilly Reception for Kerkorian Bid?


 

 

The surprise or perhaps not so surprising $4.5 billion bid for DaimlerChrysler byLos Angeles billionaire Kirk Kerkorian is likely to get a very chilly reception in Germany

Even without the standard German aversion to meddlesome corporate raiders, DaimlerChrysler's directors have a deep-seated mistrust of Kerkorian and his automotive adviser, Jerry York, because of the litigation that followed the original merger that created DaimlerChrysler in 1998. York leaned hard on Chrysler’s board, which included two of Kerkorian's own appointees, while it was an independent company. He then turned around two years later and sued Chrysler, claiming he didn't know the Germans were plotting a takeover until then-DaimlerChrysler chief executive Juergen Schrempp said so in an interview with the Financial Times.

 

A federal judge ultimately ruled in DaimlerChrysler’s favor in 2005 but not until DaimlerChrysler had spent millions on attorneys’ fees and, on the advice of lawyers, also had settled claims by pension funds, which had copied Kerkorian’s original complaints. Insurance covered some of the costs.

 

The last piece of litigation that followed Kerkorian's original lawsuit wasn't settled until this past winter when a court in Stuttgart ruled that one of DaimlerChysler's insurance carriers didn't have to cover the damages, resulting in Schrempp's now famous interview. Instead DaimlerChrysler wound up footing the bill of roughly $200 million from corporate revenues — a point brought up repeatedly during the company's annual shareholders meeting last week as one more example of the hopeless incompetence of the company's top management.

 

Hilmar Kopper, who stepped down this week after 17 years as chairman of first the Daimler-Benz and then the DaimlerChrysler supervisory board, defended the payment during the meeting as a necessity all the while casting aspersions on the pliable American legal system and people like Kerkorian who abuse it.

 

The feeling against Kerkorian runs very, very deep in Stuttgart. MORE--

 

 

Nevertheless, Jerry York's now legendary shrewdness was on display in the letter he sent to the members of DaimlerChrysler's dual boards. Chrysler's unfunded pension and retiree healthcare liabilities remain the number one obstacle to any kind of a deal.

 

In his letter, York, who quit the General Motors board last winter, suggested he would like the opportunity to negotiate with the United Auto Workers to find a way to limit the liability and help put Chrysler on a path towards growth. In addition, Chrysler employees and management team would be given a share of the company in return for concessions, according to the letter.

 

DaimlerChrysler, however, has been pleading with the union for relief on healthcare issues since last summer and so far has gotten nowhere. The impasse on healthcare has cost the company, which was seeking a deal similar to those the union gave Ford and General Motors, worth an estimated $320 million. Short of getting President George Bush to nationalize the healthcare system, it's not clear what leverage York and Kerkorian could bring to bear on the current impasse, which now shows every sign of lasting all the way into next summer's contract negotiations.

 

The other bidders for Chrysler, however, also clearly face a very similar challenge, which suggests any Chrysler deal may have to wait until the labor contract is settled in September. By then, however, interest of other parties may have disappeared. Only then might Kerkorian get DaimlerChrysler's management team to at least listen.

Related Articles

 

Tracinda Offers $4.5B for Chrysler by TCC Team (4/5/2007)
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DC Says Chrysler for Sale – Or Profit by Joseph Szczesny (4/4/2007)
Company tells shareholders sale is in the works, so is turnaround.

 

Smart Open for Business – Sort Of by TCC Team (4/2/2007)
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