The legal kerfuffle in Kerkorian's suit against DaimlerChrysler over former Chrysler exec Gary Valade's late disclosed notes has pretty much confirmed my impression that the deal never was a true merger of equals. Instead, it was a de facto acquisition of Chrysler by Daimler-Benz from the beginning. The WSJ reports, for example:
The prospect of a takeover by Germany's Daimler-Benz AG worried top executives at Chrysler Corp. almost from the start of the merger talks that led to the 1998 combination that created DaimlerChrysler AG, according to notes revealed Monday in Kirk Kerkorian's lawsuit against the German auto maker.
But so what? Even if Dailer and Chrysler did misrepresent the nature of the deal, Kerkorian still has to prove, among other things, that he was (a) misled and (b) suffered monetary damages caused by that misrepresentation. I'm skeptical he can do so. As for being misled, the deal was otherwise fully spelled out in the merger documents and proxy statement. Kerkorian, moreover, had a representative on Crysler's board. Even if management misrepresented the name of the deal, it's hard to believe that Kerkorian was really misled. As for valuation, I think he's got a tough job there too. Although the deal was billed as a merger of equals, an acquisition type in which neither side usually pays or receives a control premium, the Chrysler shareholders in fact got a 28% premium for their shares. Kerkorian must prove they would have gotten even more if the deal had been billed as a takeover by Daimler. Would they? It's hard to know without access to valuation data, but I havew my doubts. Granted, Chrysler was profitable when the deal was done. The market for control of a large automaker is a thin one - few potential bidders with sufficiently deep pockets - and thin markets lead to low premiums. The auto industry generally was plagued by overcapacity and the US manufacturers burdened by goldplated union contracts. As Automobile magazine observed, "it has been clear for some time that Daimler-Benz was the healthier and better run of the two companies, and that Chrysler, with runaway costs and bloated payroll, was likely headed for bankruptcy court or a fire sale without Daimler's deep pockets." This impression is confirmed by comments made by the plaintiff's lawyer in the course of settling a suit by other Chrysler shareholders raising most of the same issues as the Kerkorian suit (via 10b-5 Daily): "The biggest problem for us was that the Chrysler division post-merger performance was horrific." That settlement reportedly brought the plaintiff shareholders a mere 43 cents a share, minus attorneys' fees. So count me as a skeptic on the ultimate merits of Kerkorian's suit.
Comments