Suit Accuses DaimlerChrysler of Lies

Tuesday, November 28th 2000, 12:00 am

By: News On 6

DETROIT (AP) â€” With its Chrysler division posting a $512 million loss in the third quarter and expecting more steep losses next year, DaimlerChrysler AG is facing yet another headache.

Billionaire investor Kirk Kerkorian on Monday filed a $8 billion lawsuit which seeks to reverse the 1998 merger between Daimler-Benz AG and Chrysler, and also accuses chairman Juergen Schrempp of lying to Chrysler shareholders.

In a statement, officials from Tracinda Corp. â€” Kerkorian's investment firm â€” said Kerkorian would have never voted for the $32.8 billion deal if it had been pitched as a German takeover rather than the ``merger of equals'' that Schrempp and former Chrysler chairman Robert Eaton had billed.

Kerkorian, who launched a hostile takeover bid for the Auburn Hills-based Chrysler in 1995 that led to a seat on Chrysler's board, is DaimlerChrysler's third-largest individual shareholder with about 4 percent of its shares. At the time of the merger, he was Chrysler's largest shareholder 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 formed earlier this year by MGM Grand's $6.4 billion buyout of Mirage Resorts.

``To close one of the largest transactions in the history of the automotive industry, defendants Daimler-Benz AG and DaimlerChrysler AG blatantly lied to all concerned in a scheme masterminded by defendant Juergen Schrempp,'' the complaint said.

DaimlerChrysler AG officials said in a statement that the allegations ``appear to be completely without merit,'' but added that they had not seen the lawsuit and declined further comment.

Besides Daimler-Benz, DaimlerChrysler and Schrempp, the suit filed in U.S. District Court in Delaware also names Manfred Gentz, the company's chief financial officer, and Hilmar Kopper, the chairman of its supervisory board, as defendants.

Tracinda spokesman George Sard said Tuesday the total amount of damages sought was $8 billion â€” $2 billion in actual damages and $6 billion in punitive damages â€” not $9 billion as indicated in a Tracinda statement Monday.

Sard said the actual damages include the drop in the value of Kerkorian's DaimlerChrysler shares since the merger â€” estimated at about $1 billion â€” and any premium over the merger price that Chrysler would have commanded if the deal had been presented as an acquisition rather than a merger. Tracinda had said it was seeking $2 billion in actual damages and $1 billion for the share decline.

Tracinda also said it ``seeks to unwind the transaction so that Chrysler will once again be an independent corporation owned by Chrysler shareholders.''

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

``Defendants always intended to relegate Chrysler to the status of a division, always intended to fire Chrysler's management and always intended to replace them with executives from their headquarters in Stuttgart,'' Kerkorian's complaint said.

``Mr. Schrempp knew that Chrysler's directors and shareholders would never approve a transaction if he told the truth, namely, that a foreign corporation was seeking to acquire complete operating control of one of America's `Big Three.'''

The suit says Kerkorian would have only approved the deal if Daimler-Benz promised a merger of equals, and that Chrysler's board needed his approval to expedite the arrangement. It also accuses DaimlerChrysler of lying to the U.S. Securities and Exchange Commission in its filings by calling the deal a merger of equals.

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

Analyst David Healy with Burnham Securities said there were clear signs the deal was not a merger of equals when it was approved in 1998. The majority of shareholders were German, and Eaton promised to give up his title as co-chairman within three years.

``Kerkorian was an enthusiastic supporter'' of those terms, Healy said. ``To me, it was never a merger of equals.''

Since the merger, the value of DaimlerChrysler's shares has dropped steadily, reaching an all-time low of $37.90 after Holden's ouster and Zetsche's appointment.

Schrempp had said that Chrysler would post a profit in the fourth quarter, but the company has since said that Chrysler's results continued to deteriorate.

â€”â€”â€”

On the Net:

http://www.daimlerchrysler.com