Chrysler Suitors: What Are They Up to Now?
May 22, 2007

With Cerberus Capital Management winning the bid for Chrysler, the other suitors didn’t go off with their tails between their legs. Instead, they are doing other deals that are garnering them headlines.

Private equity firm Blackstone Group captured global headlines Monday with the announcement that it plans to raise as much as $7.75 billion going public with its stock, with $3 billion of those funds coming from the Chinese government.

Las Vegas billionaire Kirk Kerkorian and his Tracinda Corp., which bid on Chrysler for the second time, shifted gears away from cars again and back to casinos. Tracinda filed notice Monday that it had entered into negotiations with MGM Mirage, which owns the luxurious Bellagio and the under-construction CityCenter, believed to be one of the most expensive privately financed projects in U.S. history. As usual, no one is sure what Kerkorian and Tracinda are up to with the deal.

Canadian auto supplier Magna International, which received an influx of $1.54 billion from Russian tycoon Oleg Deripaska that was thought to boost Magna’s Chrysler bid, announced that it is forming a carmaking venture with Russia’s Avtovaz.

Blackstone: A Precedent-Setting Deal

Blackstone was believed to be a bidder for Chrysler, though the private equity firm was mum on any offer. It’s not so mum on its plans to go private and its investment from China. It can’t be quiet; it is a large, precedent-setting deal that makes its interest in Chrysler look like small potatoes.

Blackstone filed the required regulatory papers on Monday that shows the firm, whose funds own 43 companies, will sell as many as 153.3 million shares for $29 to $31 each. That will bring in as much as $4.75 billion, with a Chinese state-owned investment company chipping in another $3 billion.

"Blackstone is more appealing now because they have the Chinese connection,'' Andrew Metrick, a professor of finance at the University of Pennsylvania's Wharton School in Philadelphia, said told Bloomberg News. "That will really open a lot of doors for them.''

The Chinese will own under 10 percent of Blackstone, will have no voting rights, must hold the shares for at least four years and cannot invest in a competing private-equity firm for a year. The Chinese say it is nothing more than a financial investment for which it is seeking profitable returns.

But the Financial Times of London calls the move by China and the structure of the deal "a political masterstroke." Tensions between China and U.S. have been high, and the timing of the deal came on the eve of this week’s talks in Washington between China, the largest holder of U.S. government debt behind Japan, and U.S. on monetary and trade issues.

Still, the deal has its critics. Blackstone's public offering is drawing fire from unions and politicians about the limited partnership structure, which allows it to avoid regulation and corporate taxes of as much as 35 percent on most incomes. The AFL-CIO, the biggest labor union in the U.S., has asked the Securities and Exchange Commission to investigate the offering.

Tracinda: Staying in Vegas

Bad blood between Kerkorian and Chrysler prevented DaimlerChrysler from taking seriously Tracinda’s $4.5 billion bid for the automaker. (Cereberus' offer is valued at over $7 billion.) DaimlerChrysler wouldn’t send Tracinda the paperwork to make an offer; Tracinda didn’t make it into the final stage of discussions.

The bad blood came from Kerkorian’s move for Chrysler a decade ago, and his subsequent lawsuits filed against DaimlerChrysler for the so-called “merger of equals” being unequal.

In addition, Tracinda owned a 10 percent stake in General Motors, but dumped it last year after GM rejected an alliance with Nissan-Renault at Tracinda’s urging.

In both cases, Tracinda returned to its roots –- Las Vegas hotels and casinos. What’s not clear is just what Kerkorian is up to this time. The board of MGM Mirage, which also owns the Mirage, Luxor, Mandalay Bay and New York New York and in which Kerkorian is a majority stakeholder, will consider Tracinda’s offer today. What’s not clear is if Kerkorian plans to take MGM private or is putting it in play, The New York Times noted today.

Magna: To Russia With Cash

When Magna announced the Russian billionaire had invested $1.54 billion in the Canadian auto supplier, speculation was the influx of cash was to boost Magna’s well-publicized bid for Chrysler, less than the company’s assertion that it was for expansion in fast-growing Russia.

But apparently some of the cash will be used to expand in Russia. The Magna-Avtovaz venture will initially produce 220,000 low-priced cars a year, the news agency Prime-Tass reported.

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