Billionaire investor Kirk Kerkorian’s Tracinda Corp has made a $4.5 billion cash offer for the Chrysler Group. In a statement to the press, the company said it intends to “build and strengthen” the company and will try to make good with the UAW..
Tracinda says it will “offer the UAW and Chrysler management the opportunity to participate as equity partners in the transaction.”
There has been mounting pressure on DaimilerChrysler to sell the struggling Chrysler Group. At the New York Auto Show this week, DaimilerChrysler CEO Dieter Zetsche officially confirmed Chrysler is for sale.
The Tracinda offer is the third high-profile bid for the company, which consists of Chrysler, Dodge , and Jeep . General Motors is believed to have offered next to nothing for the group, and Canadian auto parts supplier has bid $4.7 billion. Analysts value Chrysler anywhere from nothing and $13 billion, depending on the buyer and other variables. Daimler-Benz paid $38 billion for the Chrysler Group in the 1990s.
Kerkorian and York back in the spotlight
Kirk Kerkorian and his aide Jerry York made headlines last summer when they initiated talks between General Motors and Renault- Nissan about an alliance. At its peak, Tracinda owned around 10 percent of General Motors. After the alliance talks fell apart, Tracinda sold its stake in General Motors, and Jerry York quit GM’s board of directors.
Letter to Dr. Zetsche
Mr. York sent a letter to Dr. Zetsche explaining his intentions:
Dear Dr. Zetsche:
I had the chance to meet you briefly at Gary Valade’s retirement party in early 2004, and enjoyed our chat at the time, on Toyota pricing as I recall. Of course the several hundred in attendance at that event were in high spirits, as the impact of Chrysler’s early 2000’s turn around plan was beginning to exhibit remarkable results.
But of course this was three years ago, when gasoline prices were still below $2.00 per gallon in the US, and before three more years of rampant healthcare inflation had taken place.
As Tracinda’s letter to DaimlerChrysler’s Supervisory Board suggests, we have been following Chrysler closely and studying publicly available materials. And having been a major shareholder for over a decade we are very familiar with both Chrysler and the automotive industry, and have come to believe, all factors considered, that a private ownership approach is in the best interests of all Chrysler constituencies.
The right (meaning exceptionally patient) private ownership can do things that are difficult for both public companies and the wrong (meaning not so patient) private ownership, specifically:
- 1. Take a very long term approach to solving Chrysler’s problems without worrying about “EPS results†for the initial five, six or seven year period it will likely take to build Chrysler into a robust and lasting, stand-alone entity.
- 2. 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.
Regarding the first point, the necessary investments will have to be made in product development and manufacturing to [a] get Chrysler on a product renewal cycle that is fully competitive with the Asian producers in terms of newness, [b] shift the product mix towards “greener†segments, and [c] get product quality to the levels necessary to eliminate this as a bias in consumers minds towards purchasing Asian products.
The returns will not come quickly. Investors that feel the need to show “mark to market†results in their funds in relatively short time frames (just a few years) will not be willing to invest as necessary over an unusually lengthy period of time to achieve the necessary end results.
Long term, patient investing has been Tracinda’s approach. Aside from its decade-plus investment in Chrysler, it was the controlling shareholder of Metro-Goldwyn-Mayer for eight years from 1996 to 2004, and built the company through film library acquisitions into a public company worth two and a half times its acquisition cost in 1996. And more notably, Tracinda has been the controlling shareholder of MGM Mirage (originally MGM Grand) for twenty years—having built it into a public company with a market capitalization of nearly $21 billion today.
That is what we believe all the Chrysler constituencies need. Not a “quick fix,†that may show good results three or so years from now, only to have the company possibly slip into another crisis situation. But a lasting fix that builds on the fundamental requirements in the automotive industry of product newness and quality, and in the process provides returns not only to the investors, but to the employees as well through their ownership stake.
Accordingly, I hope that you and the Supervisory Board will carefully consider the proposal made today by Tracinda Corporation.
Sincerely,
Jerome B. York
