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Chrysler's Largest Shareholder Wants More : Autos: Kerkorian proposes increasing his stake to 15% from 9%, but asks the company to raise the stock's value.

November 15, 1994|DONALD W. NAUSS | TIMES STAFF WRITER

DETROIT — Billionaire investor Kirk Kerkorian, already Chrysler Corp.'s largest shareholder, said Monday that he wants to increase his 9% stake in the auto maker to as much as 15%, and urged the company to take several steps to bolster the value of its stock.

Kerkorian, a reclusive, 76-year-old wheeler-dealer known for complex transactions in the entertainment and airline fields, recommended that Chrysler undertake a stock buyback program, increase its dividend and institute a 2-for-1 stock split.

He also recommended that Chrysler drop its "poison pill" provisions. In order for Kerkorian to significantly increase his stock holdings, Chrysler would have to get rid of the provision that discourages the accumulation of 10% or more of its shares by one person.

"Despite the company's excellent operating performance in recent years, the company's stock price performance has been very disappointing," Kerkorian wrote in a letter to Chrysler's board.

Chrysler officials declined to comment on the specifics of Kerkorian's letter. "Chrysler will consider these requests as it considers the requests of all stockholders," company spokeswoman Rita McKay said.

In his letter to Chrysler, in which he praised and chastised management, Kerkorian set a Dec. 15 deadline for Chrysler's board to adopt his recommendations, which he indicated had been rebuffed in the past.

Otherwise, he would exercise other options, including filing a lawsuit to get rid of the poison pill and possibly launching a hostile takeover, said Alex Yemenidjian, an executive with Tracinda Corp., Kerkorian's operating company.

However, analysts said a takeover effort is unlikely because of the high cost and because Kerkorian has little expertise in the auto industry. They said his purpose appears to be driving the stock price higher.

Kerkorian's actions pushed Chrysler's stock up $3.125 a share to close at $49 in heavy trading on the New York Stock Exchange. The stock fell last week amid speculation that Kerkorian would sell his Chrysler shares.

Kerkorian, who has moved most of his operations from Beverly Hills to Las Vegas, has a history of challenging management. He once held major stakes in Columbia Pictures and now-defunct Western Airlines.

He made millions in a complex web of deals involving entertainment company MGM/UA. Most recently he built the MGM Grand Hotel, the largest casino-hotel in the world, and purchased a 5% stake in entertainment company Viacom Inc.

Kerkorian amassed his large holding in Chrysler in 1990 when the company was struggling to stay afloat and its stock traded at about $12 a share. He paid about $272 million for his Chrysler shares.

Today, Kerkorian's stake is worth about $1.5 billion. But that is down about $500 million from January, when Chrysler's stock hit a high of $63.50. The stock has since fallen on fears of interest rate hikes and expectations that the current boom in U.S. auto sales has peaked.

His initial investment in Chrysler came after he met and became friends with then-Chairman Lee Iacocca. Kerkorian said his was a long-term investment in Chrysler, but there were doubters.

He balked at agreeing not to accumulate more Chrysler stock in 1990. The board--worried about the risk of a hostile takeover while the company's market value was so low--lowered its poison pill threshold to 10% from 20%.

Under this provision, if an investor accumulates 10% or more of the stock, other investors are granted new stock that in effect dilutes the stake of the accumulating investor.

Kerkorian noted that Chrysler is the only auto maker to have a poison pill. He also said it is a more onerous one than those of other large companies where the threshold is much higher.

"I believe that the company's poison pill is unlawful, inappropriate and contrary to the shareholder's best interest," Kerkorian said.

Analysts said that with Chrysler's improved financial position--its market capitalization now exceeds $18 billion--the need for a poison pill is diminished because the likelihood of a hostile takeover is remote.

They said Kerkorian's concern may have less to do with buying more stock than a worry that his proposed stock repurchase program could cause the poison pill to kick in. Kerkorian is urging the company to undertake a "meaningful share repurchase program" over the next year. He also wants the company to undertake a stock split, which could make Chrysler shares more accessible to more investors, and to raise its stock dividend.

Analysts expect Chrysler, which has earned $2.2 billion in the first nine months of 1994, to increase its current $1 annual dividend to $1.50 in 1995 and perhaps to $2 in 1996.

But Kerkorian's agenda could disrupt the strategy of Chrysler Chairman Robert Eaton, who has been trying furiously to strengthen the company's balance sheet before the next economic downturn.

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