MERGER OF EQUALS ON TRIAL: Kerkorian-DCX case in limbo a year later
*BY SARAH A. WEBSTER*

DETROIT FREE PRESS BUSINESS WRITER

/February 16, 2005/

Time, it seems, does not heal all wounds.

*TIMELINE*
Key dates in the dispute between DaimlerChrysler AG and billionaire Kirk
Kerkorian:

May 7, 1998: Chrysler Corp. and Daimler-Benz AG announce plans for a
merger of equals. Billionaire investor Kirk Kerkorian also enters into a
contract with the automakers, promising to vote his Chrysler shares in
favor of the deal.

Aug. 6, 1998: Daimler and Chrysler send a proxy statement and prospectus
of the merger to shareholders. It notes that Chrysler’s largest
shareholder, Kerkorian, has already pledged his support.

Sept. 18, 1998: Chrysler shareholders approve the merger.

Nov. 17, 1998: The deal closes, and DaimlerChrysler is born. For each
share of Chrysler, holders of the automaker’s stock receive 62 percent
of a share in the new company.

Jan. 6, 1999: DaimlerChrysler shares reach an all-time high of $105 a share.

Oct. 30, 2000: The Financial Times publishes an interview with
DaimlerChrysler CEO Juergen Schrempp, in which the former Daimler
chairman appears to boast about how he planned to make Chrysler a
division all along but had to go about it in a “roundabout way” for
“psychological reasons.”

Nov. 17, 2000: Chrysler President James Holden is fired, and former
Daimler executive Dieter Zetsche takes his place.

Nov. 27, 2000: Kerkorian files a lawsuit against DaimlerChrysler and
Schrempp, alleging the merger was a takeover that cheated him out of a
higher price. Other shareholders also file suit on the same grounds,
eventually forming a class action.

Aug. 22, 2003: DaimlerChrysler reaches a $300-million settlement
agreement with shareholders in the class action, but not with Kerkorian.

Dec. 1, 2003: A trial in the case between Kerkorian and DaimlerChrysler
begins.

Dec. 16, 2003: The trial goes into recess after DaimlerChrysler lawyers
discover more than 60 pages of confidential notes detailing the merger
that were not properly disclosed to Kerkorian’s legal team.

Feb. 9, 2004: The trial resumes, with key witnesses, such as Schrempp,
recalled to the stand.

Feb. 11, 2004: The trial in the case ends.

By Sarah A. Webster

It’s been more than a year since the high-stakes trial ended between
billionaire casino magnate Kirk Kerkorian and DaimlerChrysler AG
Chairman Juergen Schrempp.

The controversy erupted in 2000 after the Financial Times recorded
an interview with the confident Schrempp, in which he says that he
never meant for the 1998 combination of the German Daimler-Benz AG
and the American icon Chrysler Corp. to be the “merger of equals”
he promised investors.

Kerkorian promptly sued, calling the union a takeover and alleging
that Schrempp’s misrepresentation cheated him out of an acquisition
premium that Daimler should have paid for his Chrysler stock.

“It’s about deceit and fraud,” the angry billionaire has insisted.

Despite a nearly five-year legal war over the $36-billion transatlantic
deal, the two sides — neither of which wanted to talk for this report
— show no signs of settling or reconciling. Nor is there a sign of
an imminent ruling by Judge Joseph J. Farnan Jr., who oversaw the
dramatic trial that had only 13 days of testimony but stretched over
three months.

The trial began in a federal court in Wilmington, Del., in December
2003. But it was interrupted with the surprise discovery of previously
misplaced internal Chrysler documents that Kerkorian’s lawyer, Terry
Christensen, called “a road map to what went on.”

DaimlerChrysler should have turned the documents over to Kerkorian’s
lawyers before the trial started, but they were reportedly misplaced
by a copying company, prompting the judge to stop the trial and
investigate whether the automaker might have deliberately concealed the
documents. The court eventually concluded that two copying companies
in different cities “probably mishandled” the documents and did not
punish the automaker.

The trial, which called heavyweights such as Kerkorian, Schrempp and
former Chrysler Corp. Chairman Robert Eaton to the stand, eventually
ended Feb. 11, 2004, with the last documents filed in the case in May.

DaimlerChrysler officials previously told investors that they expected
Farnan to rule on the case before the end of 2004. But the company
has stopped guessing when a ruling might come.

During a recent conference call with journalists, Chrysler Group CEO
Dieter Zetsche, who replaced former Chrysler President James Holden
in 2000, said he could not predict what impact a ruling might have
on the company.

“I can’t speculate on the effect because I don’t know when” a ruling
might come, Zetsche said.

Because this was a bench trial, or one with no jury, Farnan must
determine whether anyone is guilty of wrongdoing and whether Kerkorian,
now 87, suffered any damages.

Kerkorian is asking for about $1 billion in damages because he alleges
Schrempp, now 60, and other Daimler-Benz officials lied to him that
the deal would be a merger of equals. In so doing, he says the German
officials cheated him and other investors out of a premium usually
paid in takeovers.

Mergers between companies tend to garner less of a premium, if one
is paid at all. But experts testified during the trial that premiums
range all over the map in mergers and acquisitions and they often
depend on the details of the deal.

On the tape that served as a critical piece of evidence in the trial,
Schrempp, the former chairman of Daimler-Benz, explained how he planned
to make Chrysler a division all along but had to go about it in a
“roundabout way” for “psychological reasons.”

The notion that the merger was actually a takeover also was the subject
of a 2000 book, “Taken for a Ride: How Daimler-Benz Drove Off with
Chrysler,” written by Bill Vlasic and Bradley Stertz, which detailed
inner machinations within the companies that seemed to support the
idea of a secret takeover masterminded by Schrempp.

In 2003, DaimlerChrysler settled a class action with a group of former
Chrysler Corp. investors for $300 million over the allegations. But
Daimler officials maintained they did nothing wrong and that Kerkorian,
who was Chrysler Corp.’s largest shareholder at the time of the deal,
was better informed about the terms than most investors. The automaker
says Kerkorian is a savvy businessman who is entitled to nothing.

Peter Henning, a professor at Wayne State University Law School,
said that he is somewhat surprised that Farnan has taken so long to
rule on the case.

“It may well be a signal that he’s struggling over one of the issues,”
Henning said.

On the other hand, Henning noted that a year is not such a long time
for a ruling in a complex securities case such as this. The judge has a
lot of information, much of it complicated and conflicting, to digest.

What’s more, this isn’t a high-priority dispute, like a criminal case
where a defendant is waiting around in a prison cell. At its core,
this is a civil battle between two wealthy companies, DaimlerChrysler
AG and Kerkorian’s Tracinda Corp., both of which can afford legions of
high-powered lawyers. The legal bills related to this case, according
to various sources, surpassed $50 million last year.

“This is not one of those cases where justice delayed is justice
denied,” Henning said. “This is a case about money.”

Henning noted that any damages Farnan might award will likely come
with accumulated interest from the time of the damage.

The judge also may be taking his time to craft a careful ruling
that will withstand an appeal, since whatever side loses is likely
to appeal. While a jury wouldn’t have had to explain the reason for
its ruling, Henning noted, “The judge has to.”

It’s unclear where this dispute might rank on the judge’s priority
list. Many federal judges have lengthy backlogs of court cases.

Some auto reporters have nicknamed Farnan “Slow Joe” for his handling
of this high-profile dispute. But a federal report last year showed
Farnan had 16 cases on his docket that were more than 3 years old,
not nearly as bad as some of his peers. By comparison, several federal
judges have more than 80 cases more than 3 years old on their dockets.

/Contact SARAH A. WEBSTER at 313-222-5394 or swebster@freepress.com
<mailto:swebster@freepress.com>./

*Copyright © 2005 Detroit Free Press Inc.*

–Boundary_(ID_DwlwcIJtCpBfPsbp6NatcA)–