Posted by: David Welch on April 6, 2007
OK, I’ll do a mea culpa here. When I wrote on this blog a few weeks ago that former Chrysler Corp. CFO Jerome York was doing some due diligence work on Chrysler, I reckoned that he could be working for billionaire Kirk Kerkorian—his usual boss—but was likely snooping the books for someone else. Well, given Kerkorian’s $4.5 billion bid for Chrysler, it’s clear that he was working for Kirk.
Given the amount of time it will take to fix Chrysler—not to mention the fact that Kerkorian sued the very company he now must negotiate with—I didn’t see this as a likely outcome. But here we are, with Kerkorian joining a handful of investors looking to buy the company. Kerkorian can be a patient investor. He only becomes impatient when he thinks management is risking his investment with bad decisions.
The bid is very legitimate. His finance man, York, knows his way around Chrysler and the car business. When he was on GM’s board last year, York was pushing for creative ways to lower labor and retiree costs so GM could spend more on new models. That will be his game with Chrysler.
In a letter to DaimlerChrysler Chairman Dieter Zetsche, York wrote that he wants to “get Chrysler on a product renewal cycle that is fully competitive with Asian producers in terms of newness, shift the product mix toward ‘greener’ segments and get product quality to the levels necessary to eliminate this as a bias in consumers minds.”
York also proposed giving union workers stock in exchange for concessions that will help Chrysler financially. If the union would bite, that would be smart, too.
York’s letter also says he and Kerkorian want to take the company private and spend 5 to 7 years working to make Chrysler competitive. That could be just what Chrysler needs. Yank it’s financial results away from angry German shareholders or impatient Wall Streeters and Chrysler could make better long-term decisions.
What we don’t know is who would manage the company. Maybe York would keep current management and act as a non-executive chairman. In any case, Kerkorian’s proposal is very real.
To win the bidding, Kerkorian may have to put up more money. Others, like private equity firms Cerberus Capital Management, Blackstone Partners and parts make Magna International, will try to outbid him. Kerkorian’s $4.5 billion may now be the price of admission to get deeper into the bidding. Do I hear $5 billion?