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Commentary: You Gotta Know When To Fold `Em, Kirk


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COMMENTARY: YOU GOTTA KNOW WHEN TO FOLD `EM, KIRK

Ever since billionaire Kirk Kerkorian snapped up a big pile of Chrysler Corp. stock in 1990, Wall Streeters have wondered: How will the big-time gambler cash out? That question looms larger than ever, now that his audacious $20.5 billion buyout gambit seems more like a pipe dream every day.

Chrysler's board on Apr. 24 roundly rebuffed the bid. The company's directors "do not have any interest in gambling with Chrysler's future," Chairman Robert J. Eaton wrote to Kerkorian and partner Lee A. Iacocca. In his angry reply the next day, Kerkorian complained that "key decisions regarding the future of Chrysler are being made by a group of people who own less than 1% of the stock," and demanded a shareholder vote on the $55-per-share offer.

But the Kerkorian forces admit they still have no financing lined up. Without that, a vote--let alone a hostile bid--seems futile. Chrysler's shares, which had jumped to nearly $49 on the news of the bid, dropped to under $42 on Apr. 26 because of fears that the offer is under water.

GREENMAIL RAGE. So now what? Think compromise. A good one already may have come up in discussions between the two sides. A source close to the situation contends that before Kerkorian and Iacocca launched their bid on Apr. 12, Chrysler offered to help find buyers for the duo's shares. Alex Yemenidjian, an executive with Kerkorian's Tracinda Corp. investment company, denies that such an offer by Chrysler was ever made.

Whatever the truth may be, the two sides now may be ready--and would be well-advised--to reconsider the idea. Chrysler's brass is disgusted with the meddling by Kerkorian and Iacocca, and would love nothing better than to be rid of them for good. And unlike most folks, Kerkorian can't just call up his broker and say, "sell." If he dumped his 36 million shares now, Chrysler's stock would tank badly. Barring an unlikely offer from another bidder, Kerkorian may be stuck. "They will do something together," predicts analyst Maryann Keller of Furman Selz Inc.

Greenmail won't fly, of course. Other big shareholders, such as Ted Shasta, vice-president of Loomis, Sayles & Co., which controls 1% of the company's stock, say they would be livid if Kerkorian got a higher-than-market rate for his shares. In addition, a 1987 law slapped an onerous 50% federal excise tax on greenmail earnings. But a deal that paid Kerkorian the market rate might fly with other shareholders, says Lehman Brothers Inc. analyst Joseph Phillippi.

One possible scenario: Chrysler could agree to buy back a chunk of Kerkorian's shares as part of an ongoing share-repurchase program. The company's board left the door open to such an arrangement, saying in a statement after its Apr. 24 meeting that Chrysler might use some extra cash to supplement an ongoing $1 billion stock buyback. Analysts say Chrysler's roughly $2 billion in free cash flow this year would allow it to buy far more stock and maintain the $7.5 billion cash cushion Eaton says it needs.

Such a buyback program would keep Chrysler's share price from skidding much lower, say analysts. Kerkorian's remaining shares then could be sold to the public in a Chrysler-sponsored secondary stock offering, complete with a road show by top executives and help from the company's investment bankers.

Another option: Chrysler could help locate a friendly buyer for Kerkorian's 10% stake. The company would need to find an investor with a longer view than Kerkorian or with strategic reasons to hook up with Chrysler. That might be a tough job, though. For an investment of about $1.5 billion, a white knight such as a foreign carmaker would gain little say in Chrysler's management.

Kerkorian clearly thinks the company is worth more than its current going rate. Still, he paid only an average of $19.37 per share for his stock. So at $42 per share, he would pocket more than $800 million in profit, before taxes. Of course, Kerkorian still would prefer to be trumped by a higher offer. But with his bid showing signs of faltering, he might be wise to settle for a Chrysler-aided, face-saving buyout.By David Woodruff


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