Error processing SSI file
DCX's Schrempp wins big in high-profile case
Ruling is setback for billionaire investor Kirk Kerkorian, who sued on fraud claims.
DaimlerChrysler AG CEO Juergen Schrempp is still trying to revive the empire he formed in 1998. Chrysler is back in the black, but Mercedes has slipped in earnings and quality.
DaimlerChrysler vindicated
A U.S. judge ruled that no laws were broken in the 1998 merger between Daimler-Benz and Chrysler, ending a lawsuit brought by billionaire shareholder Kirk Kerkorian. Kerkorian contended that he was owed $1 billion in damages for being falsely led into believing the 1998 deal was a merger of equals in order to lower the transaction price. Do you agree with the ruling?
Error processing SSI file
A judge said Kirk Kerkorian, once Chrysler Corp.'s largest shareholder, failed to prove he had been misled about the company's merger. The billionaire investor may appeal.
Comment on this story
DaimlerChrysler AG CEO Juergen Schrempp won a big victory Thursday against a bitter adversary after a U.S. judge cleared him of fraud charges leveled by Las Vegas billionaire Kirk Kerkorian.
U.S. District Judge Joseph Farnan said Kerkorian, Chrysler's biggest investor in 1998 when Germany's Daimler-Benz AG acquired Chrysler Corp., was a sophisticated investor who had failed to prove that he had been misled about the nature of the deal.
Kerkorian and his investment arm, Tracinda Corp., sought more than $1 billion in damages from Schrempp and DaimlerChrysler, claiming that then-Daimler-Benz CEO Schrempp never intended the deal to be a merger of equals, although the deal was described that way at the time.
In a 125-page ruling, Farnan said Tracinda appeared in 1998 to be concerned primarily with the prospect of financial gain.
"Tracinda did not find corporate governance or the 'merger of equals' label to be important at the time of the merger," Farnan wrote.
"Kerkorian supported the merger and thought there 'would be good value' in the transaction before he had any discussions about corporate governance."
The judge agreed with DaimlerChrysler's defense that it had complied with the deal's terms as they were spelled out in the proxy statement and other documents vetted by Kerkorian's counselors and lawyers.
Although Kerkorian is weighing an appeal, Farnan's ruling comes as a huge relief to Schrempp, who is still trying to restore the profitability of his auto empire. Chrysler has recovered from heavy losses to become profitable, but Mercedes is now struggling to improve earnings and quality.
Financial analysts said the company could afford the damages, but a victory was the best outcome. As for Schrempp, "he dodged a bullet," said analyst David Healy at Burnham Securities.
Kerkorian filed suit against Schrempp and other DaimlerChrysler officials in 2000, citing two interviews in which Schrempp appeared to suggest that he always intended the deal to be a takeover. In that case, Kerkorian argued that he was entitled to a takeover premium for his stake.
The value of Kerkorian's Chrysler stake soared from just under $3.7 billion to $4.8 billion after the deal was announced. But his attorneys argued that Tracinda would have received more if Daimler-Benz had openly proposed a takeover.
"By calling the transaction a merger of equals, Daimler saved $7 billion to $8 billion in the acquisition, Chrysler management got rich, and Chrysler shareholders got cheated out of a control premium," Kerkorian attorney Terry Christensen said last year.
In a notorious interview with Britain's Financial Times newspaper in November 2000, Schrempp said he had always wanted to make Chrysler a division but had gone about it in a "round-about" way for psychological reasons.
In another interview with Barron's, he said he had what he wanted: "I have Daimler, and I have divisions."
In a 13-day trial in Wilmington, Del., Schrempp did not deny the statements but said he was misinterpreted. He said his intention had been to structure Chrysler's operating business as a division of the new company, much like Mercedes-Benz.
Kerkorian's attorneys also pointed to the shrinking number of former Chrysler officials on the DaimlerChrysler management board -- only one when the trial ended in February 2004 -- as further evidence of a German takeover.
Kerkorian testified in court that he had relied on assurances from former Chrysler Chairman Bob Eaton that the deal would be a merger of equals.
But Farnan said Kerkorian should not have relied only on his "reasonably general" talks with Eaton, as he had thorough access to details of the negotiations.
The 87-year-old casino mogul had appointed a representative on Chrysler's board -- James Aljian -- after his own aborted takeover bid in 1995.
That year, Kerkorian also hired Jerry York, Chrysler's former CFO, who was concerned that the Auburn Hills automaker might run into serious difficulties if it did not pair up with a strong automaker.
"The court cannot ignore the sophistication of Tracinda as an investor and its subjective views regarding the transaction in light of the information that was available to it, which was far more than that which is available to the average investor," Farnan wrote.
Before the trial began, DaimlerChrysler settled similar suits from other investors claiming to have been duped.
"While we are clearly disappointed in today's judgment, we are pleased that other DaimlerChrysler shareholders who followed Tracinda's lead and filed lawsuits based on our exact claims ... were successful in reaching a settlement with DaimlerChrysler for $300 million," Christensen said. "It is obvious that, as an individual shareholder, Tracinda was held to a different standard.
You can reach Christine Tierney at (313) 222-1463 or ctierney@detnews.com.
Copyright © 2005
The Detroit News.
Use of this site indicates your agreement to the Terms of Service (updated 12/19/2002).