1995-1997: KERKORIAN’S FAILED TAKEOVER ATTEMPT PRESSURED EATON TO FIND A PARTNER
Jesse Snyder and Bradford Wernle
Automotive News
4299954
April 30 2009
On April 11, 1995, Chrysler Corp. Chairman Bob Eaton, alone in a
company-owned apartment in New York, called billionaire Kirk Kerkorian,
the automaker’s biggest shareholder. It was 7:30 p.m. in New York,
4:30 p.m. at Kerkorian’s Las Vegas office.
Kerkorian owned 10 percent of Chrysler stock — 36 million
shares. During the two-minute phone call, Kerkorian told Eaton that
the next day, he would offer to buy all other Chrysler stock and take
the company private.
Eaton expected the news, after several lower-level overtures. He had
ordered Chrysler’s lawyers to prepare a spirited defense.
Incredibly, the two titans of industry failed to communicate on
the most basic point. Kerkorian wanted to launch a leveraged buyout
financed by Chrysler’s own cash. Chrysler management would take part
in the buyout and run the privately held company.
But Eaton and his top managers saw Kerkorian’s plan as a hostile
takeover. They were determined to fight.
According to the 2000 book Taken for a Ride: How Daimler-Benz Drove
Off With Chrysler — an account of the Daimler-Chrysler merger by Bill
Vlasic and Bradley Stertz — Eaton later claimed he told Kerkorian:
"You know what I have to do. You know we can’t join you on this."
But Kerkorian insisted that Eaton had pledged to stay neutral. He
quoted Eaton: "We can’t say, hey, it’s the right thing to do, but I
won’t oppose it."
That phone call was Eaton’s last chance to head off the takeover
bid. On April 12, Kerkorian offered $22.8 billion for Chrysler. Eaton
and the company bitterly opposed the bid, which dragged on for almost
10 months before the two sides reached a truce.
Eaton’s nemesis Kirk Kerkorian’s influence â~@¢ Demands for cash
drained Chrysler’s reserves.
â~@¢ He became a distraction to Chrysler executives.
â~@¢ His hostile bid for the automaker pushed Chrysler into Daimler’s
arms.
‘Rifle Right’
The protagonists could hardly have been more different. The
mild-mannered Eaton was an engineer by training, a buttoned-down
corporate conservative who had risen through the ranks of General
Motors before he joined Chrysler in 1992. Associates say Eaton was
tough-minded and determined, but disliked direct confrontation.
Kerkorian, now 91, was the son of Armenian immigrants. An amateur boxer
who earned the nickname "Rifle Right" as a teenager in California,
he also was a skilled negotiator. In his youth, he persuaded the
owner of a flight school and dairy to let him milk cows and shovel
manure in exchange for flying lessons.
Kerkorian took risks to get ahead. During World War II, he flew 33
Mosquito bombers from the factory in Canada across the treacherous
North Atlantic to air bases in Scotland. Many delivery pilots died,
but Kerkorian survived. After the war, he used the money he earned
from those flights to set up an air charter business.
Given the personality differences between Eaton and Kerkorian,
perhaps it’s no surprise that the Chrysler takeover war was long and
bitter. Kerkorian finally agreed to halt his bid and not try again
for at least five years. In return, Chrysler bought back more of its
stock, raising the value of Kerkorian’s shares.
Eaton had prevailed, for the moment. But the experience convinced
him that Chrysler was too vulnerable as an independent and needed a
strong partner. His truce with Kerkorian triggered a chain of events
that led to Chrysler’s merger with Daimler-Benz three years later.
Kerkorian’s demands
In the meantime, Eaton worried about Kerkorian’s constant demands on
Chrysler to buy back stock. Kerkorian had ratcheted up the pressure
by building an alliance with former Chrysler Chairman Lee Iacocca
and hiring former Chrysler executive Jerry York.
Senior Chrysler executives observed that Eaton was increasingly
preoccupied with mounting an anti-takeover defense. He would raise
the issue in staff meetings on unrelated topics.
In his eagerness to fend off Kerkorian, Eaton found a buyer —
Daimler-Benz — that paid generously for Chrysler. But its beneficence
came at a price.
Daimler ultimately wrecked Chrysler’s entrepreneurial corporate
culture, former Chrysler Executive Vice President Francois Castaing
insisted.
Eaton "gave away the company to the Germans," Castaing said. "He
created a dynamic that destroyed Chrysler."