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HEADLINE: Kerkorian digs in for long fightAngry billionaire investor
unlikely to walk away empty-handed in suit with automaker
BYLINE: Bill Vlasic; The Detroit News
DATELINE: AUBURN HILLSLAWSUITS
AUBURN HILLS -- His frustration over events at DaimlerChrysler AG had been
brewing for months before Kirk Kerkorian filed his
$8-billion lawsuit against the German automaker on Monday.
The 83-year-old billionaire wasn't just angry over a cancelled meeting with
DaimlerChrysler Chairman Juergen Schrempp. He didn't focus
only on the slumping stock price, the exodus of American executives, or even
Schrempp's admission that he never intended DaimlerChrysler
to be a merger of equals.
Kerkorian simply had had enough.
And he wasn't about to let Schrempp ignore him any longer.
But Schrempp can't ignore Kerkorian now. The enigmatic financier, who owns a
4-percent stake in DaimlerChrysler, is a patient, tenacious
opponent who is not going away.
"When Kirk gets unhappy, it happens over time," said Terry Christensen,
Kerkorian's attorney. "Since the beginning of the year, bit by bit, he
got angrier."
The anger boiled over Monday when Kerkorian's Tracinda Corp. filed suit in
U.S. District Court in Delaware against DaimlerChrysler,
Schrempp, and two other top German officials.
The suit charged Schrempp with fraud in misrepresenting the DaimlerChrysler
deal in 1998 as a merger of equals when he was, in fact,
planning a takeover of Chrysler.
Kerkorian, who owned a 13.7-percent stake in Chrysler, claims he never would
have voted his shares in favor of a deal that stripped
Chrysler of its autonomy and destroyed its executive roster.
His lawsuit has been followed in rapid fashion by a series of copycat
class-action suits. As of Wednesday, five law firms have filed nearly
identical suits against Schrempp and DaimlerChrysler.
Going toe-to-toe
Kerkorian is approaching his showdown with Schrempp in the same way he stood
toe-to-toe with Chrysler in 1995.
When Chrysler fought off Kerkorian's own attempted buyout of the automaker,
Kerkorian reloaded and threatened a proxy fight to recast
the company's board of directors. After a protracted public battle, Chrysler
ultimately gave Kerkorian what he wanted: a board seat for one
of his deputies, a major stock buyback to boost the share price, and fatter
dividend payouts.
The legal fight launched by Kerkorian on Monday is shaping up as the same
type of long-term war of nerves.
"I would never say that Kirk wouldn't be willing to settle out of court,"
said Christensen. "But it's highly, highly improbable."
DaimlerChrysler has yet to react to Kerkorian's suit except to publicly
dismiss it as "without merit," according to a company spokesman.
Legal papers served
Christensen said that legal papers were served on DaimlerChrysler in
Delaware on Tuesday, and that a German-translated version of the
suit will be served on the company by early next week. From that point,
DaimlerChrysler will have 20 days to respond in court.
Unless DaimlerChrysler can get the case dismissed in court, depositions of
company executives, including Schrempp, could begin in early
spring.
Kerkorian has been silently moving toward a confrontation with Schrempp
since early this year. In February, he expressed his
disappointment to associates about the departures of key Chrysler
executives, including Chrysler's former chairman, Robert J. Eaton, and
president, Thomas Stallkamp.
$1.4-billion loss
The steady deterioration in the company's stock also vexed him. As of
Wednesday, the value of his 33 million shares has plummeted by
about $1.4 billion since the DaimlerChrysler deal was finalized in November
1998. DaimlerChrysler shares closed Wednesday at $39.02,
down 0.5 percent.
Moreover, Kerkorian found himself unable to influence Schrempp or the
DaimlerChrysler supervisory board. James Aljian, a top Kerkorian
aide, served on the company's "shareholder committee," but that group lacked
any authority in the German corporate governance system.
Even so, the shareholder committee, including Aljian, tried to convince
Schrempp that a stock-buyback program -- a favorite tactic of
Kerkorian's -- could pump up the flagging stock price.
Kerkorian himself hoped to push for a stock buyback in a personal meeting
with Schrempp.
Kerkorian rebuffed
In May, Kerkorian was in Berlin at the same time as the DaimlerChrysler
annual shareholders meeting. Aljian approached Schrempp to
make time for a meeting with Kerkorian. Schrempp agreed, then cancelled the
session.
Kerkorian, associates say, was livid when he learned that Schrempp flew to
his ranch in South Africa rather than meet with him.
The rebuff intensified Kerkorian's analysis of the worsening situation
within Chrysler. Through intermediaries, he learned of the sagging
morale of executives and managers at Chrysler headquarters in Auburn Hills.
He grew concerned that Schrempp had stripped the old
Chrysler of any semblance of independence.
By early October, Kerkorian asked Christensen to analyze possible courses of
legal action. "We began exploring options," Christensen said.
The last straw
Then, on Oct. 30, the Financial Times article landed on Kerkorian's desk in
his office just off of ritzy Rodeo Drive in Beverly Hills, Calif.
Kerkorian, associates said, was floored by Schrempp's admission that the
"merger of equals" laid out in the DaimlerChrysler proxy was
never Schrempp's intent.
"If I had gone and said Chrysler would be a division, everybody on their
side would have said, there's no way we'll do a deal," Schrempp
was quoted as saying. "But it's precisely what I wanted to do."
Almost immediately, Kerkorian assembled his war machine -- Christensen's
firm in Los Angeles; the New York law firm of Fried, Frank,
Harris Shriver & Jacobson; and the New York public relations firm Citigate
Sard Verbinnen. The lawsuit was prepared and filed 27 days
later.
The wave of class-action suits following Kerkorian's lead don't alter the
dramatic showdown shaping up.
Financier calls shots
"Those are a sideshow," said Adam Pritchard, a securities-law professor at
the University of Michigan. "Even if the suits are consolidated
by the court, Kerkorian will be calling the shots."
And once Kerkorian moves, he isn't in a negotiating mode.
On Monday evening, a few hours after the suit was filed, a senior
DaimlerChrysler lawyer telephoned Aljian.
The lawyer, Kerkorian's associates say, asked if Schrempp could meet with
Kerkorian to talk things over.
The offer was turned down flat.
Reference: http://web.lexis-nexis.com/more/ai/17013/6610212/5
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