DETROIT – A federal court ruled Thursday in favor of U.S.-German automaker DaimlerChrysler AG (DCX) in a high-profile securities lawsuit that pitted billionaire investor Kirk Kerkorian (search) against the company.
Kerkorian sued DaimlerChrysler (search) for more than $1 billion, claiming DaimlerBenz (search) engineered a takeover of Chrysler Corp. in 1998, then cheated him out of an acquisition fee by claiming it was a merger of equals.
DaimlerChrysler insisted the merger was one of equals and that Kerkorian, whose Tracinda Corp. was Chrysler's largest shareholder at the time, grew disgruntled when his stock price fell. A takeover would have cost DaimlerBenz far more, Kerkorian contended.
U.S. District Judge Joseph Farnan Jr. presided over a bench trial in Wilmington, Delaware, that concluded in February 2004.
"Although the Chrysler/DaimlerBenz merger was a transaction completed on the open market, then dealings of the companies with Tracinda occurred on a one-to-one level," Farnan wrote in his 124-page opinion.
"After considering the evidence adduced at trial, including the testimony of Kerkorian and other Tracinda representatives, the Court finds that the corporate governance issues, including the 'merger of equals' label, the selection of the German AG form, and the voting status of members of the management, were not significant to Tracinda," Farnan wrote.
In a news release Thursday, DaimlerChrysler Chairman Jurgen E. Schrempp said the company was pleased with the court's decision because it confirmed, "once and for all, that the Tracinda case lacked any merit and that all claims against DaimlerChrysler relating to the 1998 merger were completely baseless."
The case has been a thorn in the side of Schrempp, whose comments in an interview with the Financial Times after the merger were used by Kerkorian in his suit.
In a statement Thursday from Los Angeles, Tracinda attorney Terry Christensen said the company was "clearly disappointed" with the judgment. But Christensen added "we are pleased that other DaimlerChrysler shareholders who followed Tracinda's lead and filed lawsuits based on our exact claims and key discovery were successful in reaching a settlement with DaimlerChrysler."
In August 2003, DaimlerChrysler agreed to pay $300 million to settle a $22 billion class-action lawsuit filed by other investors who also claimed they were misled.
"DaimlerChrysler admitted they did not want a jury to hear those claims," Christensen said. "It is obvious that as an individual shareholder, Tracinda was held to a different standard."
Kerkorian, who sued in 2000, was a bit more pointed in his response to the outcome: "The Americans were laughed at in the German Board meetings for having agreed to become a German corporation. Daimler management marveled at the success of their project Blitz and the takeover of an American icon."
Tracinda said it was "considering all of its options" but didn't elaborate.
DaimlerChrysler has struggled to make the efficiency and global scale promised by the merger pay off for shareholders, whose stock remains worth considerably less than it did when the two companies linked up. DaimlerChrysler stock has lost about a third of its value over the past five years.
Christensen said in February after the trial that calling the transaction a merger of equals resulted in DaimlerBenz saving at least $7 billion in an acquisition, Chrysler managers getting rich, and Chrysler shareholders being cheated out of a control premium.
But in testimony, University of Chicago professor Daniel Fischel said Kerkorian benefited from the deal as well.
Fischel, a business law expert hired by DaimlerChrysler, rejected various analyses done by Kerkorian's experts as "fundamentally flawed" and "conceptually incoherent."
Fischel concluded that the 28 percent premium received by Kerkorian and other Chrysler shareholders was comparable to and often higher than premiums in similar deals, regardless of whether they were considered acquisitions or mergers of equals. He said the value of Kerkorian's Chrysler holdings increased by $1 billion simply upon the announcement of the deal.
Kerkorian pointed to the 2000 interview with The Financial Times in which Schrempp said the current German-heavy management of DaimlerChrysler was what he always envisioned, and that the combination of the companies was billed as a merger of equals "for psychological reasons."