Kerkorian offers $4.5B for Chrysler

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Maverick financier proposes to take troubled automaker private, offers stake for UAW; Daimler stock rallies.

NEW YORK (CNNMoney.com) -- Kirk Kerkorian, once the biggest shareholder of Chrysler Corp., has sent a letter to DaimlerChrysler offering to buy the struggling automaker back for $4.5 billion.

Kerkorian is proposing to take the struggling automaker private, and his bid is contingent upon reaching a deal on a new labor agreement with the United Auto Workers union.

Financier Kirk Kerkorian is offering $4.5 billion to buy the troubled automaker Chrysler from the German company he once sued for $9 billion.

His letter, released to the public, says he would offer ownership stakes to the union and its membership as well as Chrysler management were he to buy it.

He also said the offer is contingent on reaching what he called an "equitable arrangement" with DaimlerChrysler for it to assume some of the unfunded pension liabilities and health care costs of Chrysler retirees. But he said the cash offer is not contingent upon arranging financing.

DaimlerChrysler (up $3.73 to $84.80, Charts) shares jumped nearly 3 percent in Thursday afternoon trading, and shares of General Motors rallied as well.

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Kerkorian's letter offers to give DaimlerChrysler a $100 million escrow fee, a quarter of which he said he would forfeit if he were to walk away from the deal after conducting due diligence.

Han Tjan, a spokesman for DaimlerChrysler's New York office, had only limited comment, saying, "We do confirm that we are potential interested partners. All options are open. We do not have any further comments."

A UAW spokesman was not immediately available for comment, nor was any spokesman for Kerkorian. In addition to releasing Kerkorian's letter, the financier's investment firm also released a letter to DaimlerChrysler from Jerry York, his adviser and a former Chrysler executive who helped to lead a previous turnaround at the company. In the letter he argues that fixing the problems at Chrysler would be easier for an independent but privately held company.

York's letter said Kerkorian would "offer a substantial portion of equity in the company to the UAW as part of finding a solution to ever-rising healthcare costs, which not only are unaffordable by corporations, but over time will likely prove to be unaffordable by governmental entities as well."

However, Erich Merkle, an analyst with IRN, told Reuters the $4.5 billion offer sounded on the low side.

"I think Chrysler can probably fetch some place higher than, say, $5 billion," Merkle said, but added that it was "really damaged merchandise" right now.

"I know Blackstone had offered $4.6 or $4.7 [billion] a few weeks ago," Merkle said.

DaimlerChrysler Chairman and CEO Dieter Zetsche confirmed at the company's annual meeting Wednesday that it has been in discussions with buyers who had shown "clear interest" in the company's North American unit, which lost $1.5 billion last year and is not projected by the company to return to profitability until 2008.

The unit was essentially put up for sale on Feb. 14, when Zetsche said Daimler would look at all options for the company, the same day he and Chrysler executives unveiled a turnaround plan that called for the automaker to close plants and cut 13,000 jobs, about 16 percent of its North American staff.

The company's labor agreement with the UAW runs through September, as do similar agreements between the union and General Motors (Charts) and Ford (Charts). All three U.S.-based automakers have been losing share to Asian automakers such as Toyota Motor (Charts), which operate nonunion plants. Toyota passed DaimlerChrysler in U.S. sales for the first time in 2006 to take its traditional No. 3 ranking.

While Chrysler has been losing money, it does have some attractive assets, notably Jeep, and is reported to have attracted bids from some of the nation's largest private equity firms, including the Blackstone Group and Cerberus Capital Management, as well as from a Canadian parts supplier, Magna International (Charts).

Kerkorian's most recent investment in the auto industry did not go well. He started buying shares of GM in 2005, and boosted his stake to 9.9 percent. His associate, York, was put on GM's board.

Kerkorian and York pushed GM to cut pay for top executives and directors and slash its dividend in half in an effort to win support of the unions there. But he was unsuccessful in his efforts to get GM to join an alliance with Japanese automaker Nissan (Charts) and French automaker Renault, which own stakes in one another and share a CEO, Carlos Ghosn.

Kerkorian's filings with the Securities and Exchange Commission show that he lost about $8.6 million buying and selling GM over a 19-month period, although dividends from the troubled automaker allowed him to walk away with more than $100 million in cash from the investment.

Kerkorian was the largest shareholder of Chrysler in 1998 when Daimler-Benz bought the company for $37 billion, and he remained an investor in the combined company right after the merger.

But he soon fell out with DaimlerChrysler leadership, accusing them of disguising an acquisition as a merger of equals between the German and American automakers that did not pay a sufficient takeover premium.

In November 2000 he sued DaimlerChrysler for $9 billion, and he subsequently sold his remaining stake in the company. His suit was dismissed in April 2005.

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