Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: FRIDAY, April 14, 1995 TAG: 9504140033
SECTION: BUSINESS PAGE: A-11 EDITION: METRO CHRYSLER STOCK
SOURCE: Associated Press
DATELINE: DETROIT LENGTH: Medium
Stock investors backed away Thursday from their initial enthusiasm for a bold buyout of Chrysler Corp. by billionaire Kirk Kerkorian and the automaker's flamboyant former chairman, Lee Iacocca.
Chrysler stock fell 871/2 cents a share on the New York Stock Exchange to $47.871/2, with more than 12 million shares traded. The pace of transactions, although much higher than normal, was far from the frenzy of a day earlier, when 34.9 million shares traded hands and the price rose $9.50 to close at $48.75.
There was no word from the Las Vegas offices of Kerkorian's Tracinda Corp., which offered $55 a share Wednesday for the 90 percent of Chrysler that Kerkorian doesn't already own. But Chrysler Chairman Robert J. Eaton amplified the company's late Wednesday statement that it's not for sale.
``We have never been out shopping this company, and I don't want anyone to believe that there is a for-sale sign on the front,'' he told a news conference after the company reported first-quarter earnings of $592 million, or $1.59 per share, on revenues of $13.6 billion. Earnings were down 37 percent from $938 million, or $2.25 per share, on revenues of $13.2 billion a year earlier.
Eaton attributed the weakness to slow spring sales, heavy spending on its new minivans and the impact of Mexico's financial disaster on Chrysler operations there. In addition, earnings were reduced by $114 million set aside to cover the cost of replacing liftgate latches on up to 4.5 million minivans.
Automotive experts and analysts said Kerkorian's $22.8 billion proposal might be misguided, if he really wants to end up owning the nation's third-largest automaker.
``I would be surprised and a bit worried if the deal got done as currently structured, because it's not the right business for an LBO [leveraged buyout],'' said Steven Kaplan, a professor of finance at the University of Chicago who specializes in corporate governance and leveraged buyouts - takeovers that are financed with borrowed money.
``Where an LBO works best is in a company where for years, you've had a lot of fat,'' Kaplan said.
Half a decade of trimming has helped make Chrysler the U.S. industry's most efficient and most profitable car company. The deal proposed by Kerkorian would leave it with more than $12 billion in debt and cut its $7.3 billion cash reserve by more than 70 percent.
``They would have to be racing to pay off a good chunk of the debt before you hit a downturn,'' Kaplan said. He said industries with stiff competition and pronounced boom-and-bust cycles are risky candidates for such buyouts.
``An ideal LBO is a company like RJR Nabisco,'' Kaplan said. ``When you hit a recession, people keep eating those Oreos and smoking those cigarettes.''
RJR Nabisco Inc. was acquired by Kohlberg Kravis Roberts & Co. for $25 billion in 1989. It was the largest takeover in U.S. history. Kerkorian's Chrysler takeover would rank second if went through as proposed.
Kerkorian's true intent may be to force the company to share some of its cash with stockholders. He has pushed Chrysler for several months to take steps that would increase the value of its stock and the returns paid to shareholders.
His proposal also diverges from Chrysler's course in the area of international development. Alex Yemenidjian, a Tracinda executive, said Kerkorian was interested in having foreign companies as partners in a Chrysler Corp. he would own. Eaton considers such alliances troublesome because of the conflicts that develop among partners who also are competitors.
It is uncertain how long the drama in Detroit will play. Kerkorian could raise his offer, and Chrysler might accept. In the meantime, Chrysler must continue building and selling cars, competing in a market that seems headed toward its next slump.
by CNB