Tracinda Offers to Purchase Chrysler Group
April 05 2007 - 1:21PM
Business Wire
Tracinda Corporation today announced it has sent a letter to
DaimlerChryslerAG offering to acquire the Chrysler Group for $4.5
billion in cash. Tracinda intends to build and strengthen Chrysler
as an independent entity by partnering with the United Auto Workers
and senior management of Chrysler, and will offer the UAW and
Chrysler management the opportunity to participate as equity
partners in the transaction. Tracinda believes by taking a
long-term approach to solving Chrysler�s problems, it can become a
robust and lasting, stand-alone entity. Attached is the text of the
letters sent today by Jerome B. York to Dr. Dieter Zetsche and by
Tracinda to the DaimlerChryslerAG Supervisory Board: Dr. Dieter
Zetsche DaimlerChrysler AG Mercedestrasse 137 Stuttgart 2M 70327
Germany Dear Dr. Zetsche: I had the chance to meet you briefly at
Gary Valade�s retirement party in early 2004, and enjoyed our chat
at the time, on Toyota pricing as I recall. Of course the several
hundred in attendance at that event were in high spirits, as the
impact of Chrysler�s early 2000�s turn around plan was beginning to
exhibit remarkable results. But of course this was three years ago,
when gasoline prices were still below $2.00 per gallon in the US,
and before three more years of rampant healthcare inflation had
taken place. As Tracinda�s letter to DaimlerChrysler�s Supervisory
Board suggests, we have been following Chrysler closely and
studying publicly available materials. And having been a major
shareholder for over a decade we are very familiar with both
Chrysler and the automotive industry, and have come to believe, all
factors considered, that a private ownership approach is in the
best interests of all Chrysler constituencies. The right (meaning
exceptionally patient) private ownership can do things that are
difficult for both public companies and the wrong (meaning not so
patient) private ownership, specifically: 1. Take a very long term
approach to solving Chrysler�s problems without worrying about �EPS
results� for the initial five, six or seven year period it will
likely take to build Chrysler into a robust and lasting,
stand-alone entity. 2. Offer a substantial portion of equity in the
company to the UAW as part of finding a solution to ever-rising
healthcare costs, which not only are unaffordable by corporations,
but over time will likely prove to be unaffordable by governmental
entities as well. Regarding the first point, the necessary
investments will have to be made in product development and
manufacturing to [a] get Chrysler on a product renewal cycle that
is fully competitive with the Asian producers in terms of newness,
[b] shift the product mix towards �greener� segments, and [c] get
product quality to the levels necessary to eliminate this as a bias
in consumers minds towards purchasing Asian products. The returns
will not come quickly. Investors that feel the need to show �mark
to market� results in their funds in relatively short time frames
(just a few years) will not be willing to invest as necessary over
an unusually lengthy period of time to achieve the necessary end
results. Long term, patient investing has been Tracinda�s approach.
Aside from its decade-plus investment in Chrysler, it was the
controlling shareholder of Metro-Goldwyn-Mayer for eight years from
1996 to 2004, and built the company through film library
acquisitions into a public company worth two and a half times its
acquisition cost in 1996. And more notably, Tracinda has been the
controlling shareholder of MGM Mirage (originally MGM Grand) for
twenty years�having built it into a public company with a market
capitalization of nearly $21 billion today. That is what we believe
all the Chrysler constituencies need. Not a �quick fix,� that may
show good results three or so years from now, only to have the
company possibly slip into another crisis situation. But a lasting
fix that builds on the fundamental requirements in the automotive
industry of product newness and quality, and in the process
provides returns not only to the investors, but to the employees as
well through their ownership stake. Accordingly, I hope that you
and the Supervisory Board will carefully consider the proposal made
today by Tracinda Corporation. Sincerely, Jerome B. York
Supervisory Board DaimlerChrysler AG Mercedesstrasse 137 Stuttgart
2M 70327 Germany Gentlemen: Tracinda Corporation (�Tracinda�) has
conducted a preliminary due diligence review of the Chrysler Group
segment of DaimlerChrysler AG (�Chrysler�) by examining publicly
available documents. Subject to satisfactory completion of more
extensive due diligence, Tracinda is prepared to make an offer to
acquire Chrysler for $4.5 billion in cash. Such offer would be
subject to reaching a new satisfactory collective bargaining
agreement with the United Auto Workers Union (the �UAW�), reaching
an equitable arrangement with DaimlerChrysler regarding sharing of
unfunded pension liabilities and health care costs of Chrysler
retirees, as well as other customary conditions. The offer would
not be subject to financing. Tracinda is confident that it will be
able to obtain the necessary financing for the offer. Tracinda
intends to build and strengthen the assets of Chrysler as an
independent entity by partnering with the UAW and senior management
of Chrysler. To this end, Tracinda will offer the UAW and senior
management of Chrysler the opportunity to participate with Tracinda
as equity partners in the transaction. Tracinda is prepared to
immediately commence a more extensive due diligence review of
Chrysler. Tracinda believes that it will be able to complete its
due diligence within 60 days. Tracinda is also willing to enter
into a confidentiality agreement containing customary terms and
conditions. However, prior to devoting the considerable resources
necessary to complete a thorough due diligence investigation of
Chrysler, Tracinda requires that Tracinda receive an exclusive
right to conduct due diligence for 60 days. In order to demonstrate
its good faith and in consideration of the grant of exclusivity
Tracinda is prepared to post a deposit of $100,000,000 with a
mutually agreed upon escrow holder. If upon completion of its due
diligence investigation Tracinda is not willing to pursue a
transaction, and provided that Tracinda�s due diligence
investigation does not reveal that Chrysler has material
liabilities not reflected in information publicly available as of
today, Tracinda is willing to forfeit $25,000,000 of the deposit.
If a transaction is consummated the deposit would be applied
towards the purchase price. Tracinda believes its offer would
permit DaimlerChrysler to dispose of Chrysler at an attractive
price and enable DaimlerChrysler to focus on its other operations.
Tracinda also believes that the experience, expertise and financial
strength Tracinda and its team will bring to Chrysler will greatly
benefit Chrysler and its employees, suppliers and customers. We
look forward to working with you to consummate a transaction. Very
truly yours, Tracinda Corporation cc: Dr. Dieter Zetsche JP Morgan
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