Word: kerkorian
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Eaton was in New York when he got news of the bid in a phone call from Kerkorian. To placate Kerkorian, he had already agreed in November to raise Chrysler's dividend and start a $1 billion stock-buyback program to increase the company's share price. But here was a move that left nothing to talk about. "I'm going to fight you on this," he told Kerkorian. Canceling a speech at the New York Auto Show, Eaton flew back to Detroit to huddle with the board. No sale, they announced late that night, especially since Kerkorian was planning...
Chrysler is already at risk, or at least in play. Kerkorian's bid means that the company's managers will have to scramble to defend themselves. In 1990, in the midst of a recession that brought the company to the edge of bankruptcy for the second time in a decade, Kerkorian's Tracinda Corp., named for his daughters Tracy and Linda, started buying Chrysler stock at $12.37 a share. By now he has spent about $676 million accumulating a 10% stake. Noting that he had not lined up a cent in financing for his takeover bid, some Wall Street analysts...
...sell it back to the public for a hefty profit. Can he truly finance the buy? In addition to the money he expects to draw from Chrysler's reserve fund, his purchase plan calls for $3.5 billion from other investors and $10.7 billion in bank loans and other borrowing. Kerkorian's people also hint that some of the money to buy Chrysler might come from foreign auto companies. In the immediate wake of the deal offer, however, none has shown the cash or the inclination...
Some analysts say Kerkorian's bid actually underestimates the company's underlying value. If the U.S. economy manages to maintain moderate growth with low inflation, car sales might not suffer as they did in the last recession. And a seasoned asset stripper like Kerkorian might not hesitate to sell off some of the company's high-performance divisions, like Jeep. "I think it's a $100-per-share stock," says David Cole, head of the University of Michigan's auto-industry think tank...
...same, just one day after Kerkorian's bid was made public, the company reported a 37% decline in earnings for the first three months of this year. Chrysler execs blamed high launch costs for its redesigned minivan and the $115 million expense to make free repairs on a faulty rear-door latch on older minivans--as well as a 7.2% decline in sales. Consumer Reports has grumbled about reliability problems on the 1995 Jeep Grand Cherokee and the Dodge Intrepid. And competition is getting tougher in the minivan, pickup and sport-utility fields that made Chrysler's revamped reputation. Though...