Billionaire investor Kirk Kerkorian testified Tuesday that he never would have supported the deal creating DaimlerChrysler if it had not been portrayed as a “merger of equals” between the American and German automakers.
Kerkorian, who is suing the company for more than $1 billion in compensatory and punitive damages, said that in his dealings with former Chrysler chairman Robert Eaton there was no indication the Daimler Benz-Chrysler combination was anything else.
“It was called a merger of equals. ... It was always called a merger of equals,” Kerkorian testified in federal court.
Kerkorian, whose Tracinda Corp. was the largest Chrysler shareholder at the time of the merger, claims Daimler-Benz officials secretly organized a Chrysler takeover while proposing a merger of equals. As a result, Kerkorian claims, Daimler-Benz avoided paying him an acquisition fee of up to 62 percent on his shares when the companies merged. Kerkorian owned 14 percent of Chrysler’s shares at the time of the merger.
DaimlerChrysler maintains Kerkorian supported the deal and grew disgruntled only when his shares lost value.
A key issue in the lawsuit is a 2000 interview that DaimlerChrysler chairman Jurgen Schrempp gave to the London-based Financial Times. In the interview, Schrempp was quoted as saying he never meant for the merger to be one of equals, and that the deal was billed that way “for psychological reasons.”
In the interview, Schrempp describes Chrysler as a “division” of Daimler and said the German-heavy management “was always the structure I wanted.”
Kerkorian said Tuesday that he would not have supported the deal if the article had appeared at the time, and that he was very surprised and upset by the report. He said his doubts about the deal being a merger of equals grew when Chrysler chairman James Holden was fired a short time later and replaced by Dieter Zetsche.
“Everything fell in place,” he explained. “The article, Holden being fired, people coming over from Stuttgart.”
Kerkorian said the trust that he considers critical in his business dealings was lacking in the merger.
“You have to have trust and honesty,” Kerkorian said. “Instead if you get deceit and fraudulence, which I feel has happened here with Daimler, it doesn’t work.”
Kerkorian said he trusted Eaton, his only contact with Chrysler management.
He testified that Eaton came to him in early 1998 to discuss the proposed deal. Kerkorian said Eaton told him he needed Kerkorian’s Tracinda Corp., which owned about 89 million Chrysler shares, to support the deal or the Chrysler board would not go along.
“It was very important that we go along with it,” Kerkorian testified.
Kerkorian also said he understood a merger of equals to be when two companies are looking at each other to form an entity that has “synergism,” which he described as “two plus two equals five.”
Kerkorian said he supported the merger because he thought it had such synergy.
“I frankly thought it would be a good company, I was happy,” Kerkorian said.
Kerkorian disputed suggestions made by Chrysler attorney Jonathan Lerner on Monday that he didn’t really care if the deal was a merger of equals, and that he soured on the deal only after his shares began to lose value.
“Mr. Lerner can think anything he wants, but that’s not true,” Kerkorian said. “My feeling was that Chrysler was doing great on its own.”
In his cross-examination, Lerner suggested that Kerkorian became “very disenchanted” with Chrysler’s share price in 1994, and noted that the share price in 2000 was virtually unchanged from six years earlier.
“Weren’t you angry in 2000?” asked Lerner, who presented evidence indicating that Kerkorian threatened legal action in a successful effort to get Chrysler to agree to a share repurchase in 1994.
“No,” replied Kerkorian, who testified earlier that a dispute over a share buyback would be a “stupid reason” to file a lawsuit.
Kerkorian often grew testy in his exchanges with Lerner, at one point telling the lawyer to “move on.”
Eaton and Schrempp are scheduled to take the stand later in the trial.
DaimlerChrysler paid $3 million in August to settle similar claims from other investors. DaimlerChrysler said that suit was groundless but it settled to avoid a jury trial. In this trial, there is no jury and the judge will decide the case.