Chrysler board rejects Kerkorian's bid

April 25, 1995|By New York Times News Service

DETROIT -- Accusing Kirk Kerkorian of threatening to cripple the company, the directors of Chrysler Corp. rejected his offer to buy the automaker yesterday while dangling the prospect that they would buy back more stock or increase the dividend to mollify other investors.

In a peppery letter to Mr. Kerkorian that scorned his financial strategy for the buyout, Chrysler's chairman and chief executive, Robert J. Eaton, wrote that "our directors do not have any interest in gambling with Chrysler's future."

Mr. Kerkorian is Chrysler's largest shareholder, with 10 percent of the company's stock. He did not indicate yesterday how he would respond to what amounted to not just a formal rejection, but a public scolding.

"We are very disappointed in Chrysler's response, and we will make a further comment about our intentions at the appropriate time," said Michael Claes, a spokesman for Mr. Kerkorian's Las Vegas-based holding company, Tracinda Corp. He would not say if Mr. Kerkorian would continue to seek financing for his proposal.

Mr. Eaton's letter was addressed only to Mr. Kerkorian and made no mention of Lee Iacocca, Mr. Kerkorian's partner in the proposed purchase and Chrysler's former chairman and chief executive.

After Mr. Kerkorian announced his $22.8 billion buyout offer on April 12, the board said that Chrysler was not for sale but that it would review his proposal. Mr. Kerkorian has not publicly filled in the details of his financial plan, but the board evidently decided that it had enough information to act. Chrysler said its board had made a "thorough and careful review" of the offer.

The directors reached their decision after meeting at least two hours at the company's headquarters in Auburn Hills, north of Detroit. The meeting was convened specifically to discuss Mr. Kerkorian's offer.

The board endorsed Mr. Eaton's goal of setting aside $7.5 billion in cash to pay Chrysler's bills and sustain its development of new cars and trucks during the next economic downturn.

Mr. Kerkorian and some other large Chrysler investors, who have been restive as Chrysler's stock price languished, call that too conservative, implying that the board is holding back money that should flow to shareholders.

Mr. Kerkorian has said he would use $5.5 billion of Chrysler's cash cushion, which was $7.3 billion at the end of the first quarter, to help finance his takeover.

Mr. Eaton's letter seemed to have little effect on Chrysler's stock yesterday. It closed at $44.50 on the New York Stock Exchange, down 62.5 cents.

"I'm surprised the stock didn't crater," said Joseph S. Phillippi, auto industry analyst at Lehman Brothers. He said the letter was likely to kill Mr. Kerkorian's remaining chances of buying the company.

In a statement, Mr. Eaton said that once the company's reserves exceeded $7.5 billion, "Chrysler plans to use the excess to create additional shareholder value, through share repurchases or increased dividends." He added the proviso that the company would first consider "opportunities for investment in our core businesses and changes in business conditions."

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