To recap, Kirk Kerkorian, Chrysler’s largest individual stockholder, with a nearly 15 percent stake, has waged war on the company since last April. First came an abortive takeover bid. Since then Kerkorian’s chief aide, former Chrysler exec Jerry York, has kept up the pressure, crisscrossing the country to rail against Chrysler chairman Robert Eaton in presentations to investors. His goal: to goad Chrysler into making moves he says will increase its stock price. Eaton brushes off the war of words as just “a distraction,” but it’s clearly taking its toll-and everyone believes he has to deal with the dissidents soon. “Every day they spend defending themselves from Kerkorian is a day they don’t spend making themselves a better caretaker,” says former Chrysler finance chief Robert S. Miller.
Look for the D-Day battle to begin next month. That’s when Chrysler gives a formal reply to Kerkorian’s request for board seats, bigger stock buybacks and permission for Kerkorian to buy more shares. Kirk’s team doesn’t expect concessions, but they do hope to lure Eaton into peace talks. If they can’t, Kerkorian will launch a messy, expensive proxy fight. The possible outcomes:
Eaton and York could decide that even an uneasy coexistence on Chrysler’s board beats an expensive proxy fight that each would risk losing. If this happened, Eaton could make Kerkorian agree not to acquire more stock or make another run at the company. But given the venom that’s flown between the two sides–and York’s nonstop calls for Chrysler to give some of its cash hoard to shareholders-few observers expect to see them in the Honeymoon Suite any time soon. The odds of an early detente: 5 to 1.
Months ago, many observers expected Chrysler to find a way to pay Kerkorian to get out of the way quickly. But now both sides seem to be hunkered down for a long battle. This month Chrysler signed president Bob Lutz to a new contract, strengthening its team for the fight ahead. And Eaton recently said he expected to be dealing with Kerkorian “for a long time to come.” On the other sideline, Kerkorian would face a huge tax hit if he sold his Chrysler shares, and his team insists he’s in the stock to stay. And York has recently toned down the trash-talking to make himself look worthy of a board seat. The odds of Kerkorian’s calling it quits: 20 to 1.
In this scenario, the feuding execs will turn to the shareholders for a resolution. Kerkorian will ask them to vote to give him seats on Chrysler’s hoard: one for York, and two for new outside directors. Chrysler will ask shareholders to Just Say No. If Kerkorian were trying a 1980s-style proxy fight for control of the company, his odds would be longer than winning the Lotto–particularly when Chrysler is posting record earnings, as it did last week. But since he’s trying for only one seat, his chances are less dicey. His one advantage: even Eaton’s supporters admit York’s drum-beating has driven the stock up by 10 percent, a premium that could disappear if York loses a proxy fight. Since big shareholders like Fidelity Investments are supposed to look out for their investors, some say they’d be inclined to give York a seat rather than see Chrysler stock decline. The odds on a fight for a seat: even money.
