April 06, 2007
Kerkorian, Chrysler, and Some Thoughts on Revlon
Posted by Gordon Smith

What year is this? Kirk Kerkorian (through his investment company, Tracinda Corp.) just announced an offer to buy Chrysler for $4.5 billion in cash. (Jerry York's offer letter is here.) The last time he did this, in 1995, with the assistance of Lee Iacocca, he did not have financing arranged prior to launching the bid. Though his takeover bid failed, Kerkorian turned his stake in Chrysler into a $3 billion profit when the company merged with Daimler-Benz. (You may be wondering about the valuations here. According to the W$J, "Analysts have put the value of Chrysler at about $5 billion to $7 billion, compared with its purchase price [by Daimler-Benz] of more than $35 billion." Yikes!)

Kerkorian's new offer comes with some strings: "The offer is ... contingent on reaching a 'satisfactory' labor contract agreement with the UAW, and working out a plan with DaimlerChrysler to share Chrysler's roughly $15 billion in unfunded pension liabilities and retiree heath-care costs." The UAW didn't comment on the proposal, but I suspect that they need time to study it because the proposed deal contemplates a significant equity position for the labor union. According to the York letter, Tracinda plans to:

Offer a substantial portion of equity in the company to the UAW as part of finding a solution to ever-rising healthcare costs, which not only are unaffordable by corporations, but over time will likely prove to be unaffordable by governmental entities as well.

Hmm. This could get interesting. Many employees don't want equity stakes in their companies, which is why the employee-ownership fad of the early 1990s fizzled. I will be interested to see the reaction of the UAW.

One other point: Tracinda has requested the exclusive right to conduct due diligence for 60 days. On this aspect of the deal, Anthony Sabino, attorney for Sabino & Sabino and a professor of law and business at St. John's University  states: "Chrysler's board has to be very careful here because, as is well established under American corporate law, once you're on the block, you have to keep yourself open to all bidders."

No. The "Chrysler Group" is part of DaimlerChrysler AG, a German corporation. So "American corporate law" (Delaware?) doesn't apply to this decision. Even if "American corporate law" applied, this would not be a Revlon case. This is a spinoff of a division of DaimlerChrysler, not a sale of the company. Spinoffs don't trigger Revlon duties. Cf. In re Toys ""R'' Us, Inc. Shareholder Litigation, 877 A.2d 975 (Del.Ch. 2005).

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