Kirk Kerkorian, one of the world's richest men, Wednesday teamed up with former Chrysler Corp. Chairman Lee A. Iacocca to make a bid to buy Chrysler in a stunning $22.8-billion deal that would be the nation's second most expensive corporate purchase ever.
But the nation's No. 3 auto maker rejected the offer, saying it could put the company at financial risk. "The company is not for sale," Chrysler said in a strongly worded statement released late Wednesday after its board of directors met.
Kerkorian, who is backed by Iacocca and several unnamed investors, offered $55 a share for the auto maker's outstanding shares. The offer sent tremors through Detroit, Wall Street and international capitals.
It sparked widespread speculation that Kerkorian may be more interested in driving up the value of his 10% stake in Chrysler than in gaining control of the company. The offer could also prompt other bidders to emerge willing to pay more, putting the company "in play."
The unexpected offer also raised the specter that a long-awaited consolidation of the world's auto industry may be under way. In New York, the move prompted comparisons to the heady merger mania days of the 1980s.
The takeover fight marks another chapter in the storied history of Chrysler, which was formed in 1925 and made Dodge, Plymouth and DeSoto household names. After two brushes with bankruptcy in the '70s and '80s, the company has emerged today as a new symbol of America's industrial comeback.
News of the hostile bid became public just before Chrysler Chairman Robert Eaton was scheduled to give a speech at the New York Auto Show. He promptly canceled the appearance and flew back to Detroit, where he met with directors and advisers throughout the day.
If the bid succeeds, it would rank behind only the $25-billion sale of RJR Nabisco to Kohlberg Kravis Roberts six years ago. At $55 a share, the total value of Kerkorian's bid would be $20.8 billion, not including his 10% stake.
The proposal sent Chrysler's shares soaring. The company closed at $48.75, up $9.50 in very heavy trading on the New York Stock Exchange, after hitting a high of $52.50. The stock peaked at $63.50 last year, its all-time high.
Chrysler initially reacted cautiously to the proposal. The company said in a statement that the bid was unsolicited and noted that Kerkorian has not arranged financing. However, Chrysler said its board of directors, and legal and financial advisers would evaluate the proposal.
But after the board meeting, the company said the offer amounted to a leveraged buyout that would leave the auto maker with more debt and less cash to weather the next economic slump and develop new vehicles.
"We don't want to put the company at risk," Eaton said.
Meanwhile, 28 lawsuits were filed Wednesday in Delaware, where the corporation is registered, seeking to block Chrysler from accepting the buyout offer.
While there was some skepticism of the seriousness of the takeover proposal, analysts said Kerkorian was capable of raising the money. They also said there is a strong possibility of higher competing bidders, including foreign auto makers.
"It's going to be hard for Chrysler to put the genie back in the bottle," said David Healy, an Arizona-based auto analyst. "Chrysler has been put into play."
David Cole, executive director of the University of Michigan's Office for the Study of Automotive Transportation, said even though Chrysler has rejected Kerkorian's offer, other higher bids are likely to arise.
"Let the games begin," he said. "This will be an Olympic-sized business contest."
Kerkorian, whose fortune is estimated to be more than $2.5 billion, is proposing to make Chrysler a private company. He would bring it under the wing of his Tracinda Corp., a Las Vegas company that Kerkorian controls and that owns MGM Grand Hotel, Casino and Theme Park.
The reclusive, 77-year-old Kerkorian owns about 10% of Chrysler's stock, making him the company's largest stockholder. He began acquiring shares in 1990 when Chrysler was facing a financial crisis and its stock was trading at about $12 a share. The value of his holdings jumped nearly $350 million on Wednesday alone.
While becoming a major investor, Kerkorian also befriended Iacocca, the charismatic salesman who directed Chrysler's rescue from near financial ruin in the 1970s and '80s with federal money and put in place the strategic plan that resulted in Chrysler's recent turnaround. The company earned $3.7 billion in 1994.
Iacocca, 70, retired in 1993 but remains a Chrysler stockholder. In a statement, he said he has "no interest in actively participating in management."
Alex Yemenidjian, a top executive and spokesman for Tracinda, said that the takeover would be undertaken by putting up $5 billion in investor equity, using another $5.5 billion in excess cash that Chrysler has built up, and obtaining financing for the remaining $12.3 billion, including the company's existing debt.