Kerkorian: Low Ball Bid, But Intriguing

Kerkorian: Low Ball Bid, But Intriguing

By Michelle Krebs April 6, 2007

The bid for Chrysler by Las Vegas billionaire Kirk Kerkorian and his Tracinda Corp. is a low-ball bid, almost assuring a bidding battle, but the offer has some other intriguing elements.

The $4.5 billion bid by Tracinda is lower than the $4.6 billion to $13 billion reportedly offered by other suitors, though those figures are uncertain since details of the other bids have not been revealed.

The Tracinda deal is for cash and is not reliant on obtaining financing. Further, the Tracinda bid includes a $100 million for exclusive negotiating rights, with $25 million of it non-refundable if Tracinda decides to walk away from the deal after its 60-day review.

The Tracinda bid suggests equity by workers in the company, likely in return for concessions by the United Automobile Workers union. While workers may not be thrilled about concessions, an equity stake and the fact that Tracinda, whose Kerkorian turns 90 in June, says it is in this deal for the long haul should be appealing to them. Tracinda says Chrysler can be “a robust and lasting standalone entity.”

Kerkorian tried to align with one of the current bidding groups, but DaimlerChrysler’s broker did not send the packet of information provided to the other groups, Kerkorian’s lawyer, Terry Christensen, told The New York Times. Kerkorian then directed his lawyer to make the offer and handle the details later, the paper reported.

A History of Bad Blood

And therein lies the rub: there’s a long history of bad blood between DaimlerChrysler and Kerkorian. Any deal between the two would have to be overcome.

Exactly 12 years ago, Tracinda Corp., which acquired a 9.8 percent stake in 1990, made a run for purchasing the automaker outright. The bid, supported by former Chrysler Chairman and CEO Lee Iacocca as is Tracinda’s newest bid, was a $22.8-billion leveraged buyout offer. Chrysler’s board rejected the bid.

Later, in 1998, Daimler-Benz bought Chrysler in a move that was initially positioned as the now famous “merger of equals.” Tracinda sued saying that the so-called merger was unfair to Chrysler’s American shareholders. A federal judge later ruled in DaimlerChrysler’s favor but the company settled other similar claims by pension funds. The affair proved expensive and left DaimlerChrysler with a bad taste for Kerkorian.

Despite the bad blood, Tracinda’s bid likely is welcome by some DaimlerChrysler executives as Kerkorian’s entry indicates Chrysler represents a good deal and some money to be made, which could lead to higher bids and more suitors.

Joseph Szczesny contributed to this report.

Michelle Krebs:  is Editor-in-Chief of AutoObserver.com. Follow @AutoObserver on Twitter.