DaimlerChrysler Hit With $9B Lawsuit

D E T R O I T, Nov. 28, 2000 -- With its Chrysler division posting a $512 millionloss in the third quarter and expecting more steep losses nextyear, DaimlerChrysler AG is facing yet another headache: a $9billion lawsuit from investor Kirk Kerkorian.

In the suit filed Monday, the billionaire seeks to undo the 1998merger between Daimler-Benz AG and Chrysler and accuses chairmanJuergen Schrempp of lying to Chrysler shareholders.

Officials from Tracinda Corp. — Kerkorian’s investment firm —said Kerkorian would have never voted for the $32.8 billion deal ifit had been pitched as a German takeover rather than the “mergerof equals” that Schrempp and former Chrysler chairman Robert Eatonhad billed.

3rd-Largest Shareholder

Kerkorian, who launched a hostile takeover bid for Chrysler in1995 that led to a seat on Chrysler’s board, is DaimlerChrysler’sthird-largest individual shareholder with about 4 percent of itsshares. At the time of the merger, he was Chrysler’s largestshareholder with 13.75 percent of its shares.

Kerkorian also is the majority shareholder in MGM Mirage Inc.,the Las Vegas-based entertainment, hotel and gaming behemoth formedearlier this year by MGM Grand’s $6.4 billion buyout of MirageResorts.

“To close one of the largest transactions in the history of theautomotive industry, defendants Daimler-Benz AG and DaimlerChryslerAG blatantly lied to all concerned in a scheme masterminded bydefendant Juergen Schrempp,” the complaint said.

DaimlerChrysler AG officials said in a statement that theallegations “appear to be completely without merit,” but addedthey had not seen the lawsuit and declined further comment.

Also Seeking Chrysler Independence

Kerkorian seeks more than $2 billion in actual damages, $1billion in damages for the drop in value of the DaimlerChryslershares since the merger and punitive damages of at least $6billion. Tracinda also said it “seeks to unwind the transaction sothat Chrysler will once again be an independent corporation ownedby Chrysler shareholders.”

Tracinda cites comments Schrempp made recently to the FinancialTimes that he never intended DaimlerChrysler to be a merger ofequals, but instead secretly planned to make Chrysler a division ofthe German parent company.

The suit, filed in federal court in Delaware, claims Kerkorianwould have only approved the deal if Daimler-Benz promised a mergerof equals, and that Chrysler’s board needed his approval toexpedite the arrangement. It also accuses DaimlerChrysler of lyingto the U.S. Securities and Exchange Commission in its filings bycalling the deal a merger of equals.

Corporate Exodus

More than a dozen senior Chrysler executives have resigned,retired, or been forced out since the deal was finalized inNovember 1998. On Nov. 17, Schrempp fired Chrysler president JamesHolden, replacing him with Dieter Zetsche, a veteran Mercedes-Benzexecutive.

Analyst David Healy with Burnham Securities said there wereclear signs the deal was not a merger of equals when it wasapproved in 1998. The majority of shareholders were German, andEaton promised to give up his title as co-chairman within threeyears.

“Kerkorian was an enthusiastic supporter” of those terms,Healy said.

Since the merger, the value of DaimlerChrysler’s shares hasdropped steadily, reaching an all-time low of $37.90 after Holden’souster and Zetsche’s appointment.