Institutional shareholders believe Kirk Kerkorian's $22.8 billion bid for Chrysler Corp. is dead, but they expect it to lead to a better deal for the company's shareholders.
While they generally have supported management's handling of the company and rejection of Mr. Kerkorian's $55-a-share bid, they say Mr. Kerkorian's actions likely will lead to higher dividends and possibly an increase in the automaker's $1 billion share repurchase program.
Mr. Kerkorian's bid to buy Chrysler through Las Vegas-based Tracinda Corp. is dead or dying because of a lack of financing, and because many shareholders don't think it would be good for the company long term.
"Each day that passes, I don't see how he's (Mr. Kerkorian) going to get anything done," said Paul McManus, senior vice president with Independence Investment Associates, Boston. As of Dec. 31, Independence owned 2.735 million shares of Chrysler, according to CDA Spectrum.
"How's he going to finance the thing?" asked David Bach, an investment officer with the California Public Employees' Retirement System, Sacramento. He said the California fund owns 1.8 million shares in an indexed portfolio, he said.
And at least one manager that owns a large amount of Chrysler stock said Mr. Kerkorian's attempt is over. "I think that it has failed, completely," said Seth Glickenhaus, partner for Glickenhaus & Co., New York. He said Glickenhaus owns more than 5 million shares, almost 1.5% of shares outstanding, and probably added to its holding April 26, after Mr. Kerkorian and Chrysler Chairman and Chief Executive Robert Eaton traded jabs in publicly disclosed letters to each other earlier that week.
A large show of support for Chrysler came from the Council of Institutional Investors, Washington, which sent a broadly worded letter to the company. Its letter said CII members, as shareholders, "will be harmed if actions are taken to increase current returns at the expense of on-going returns or long term viability." The CII is a group of institutional investors that address corporate governance issues. The CII's April 19 letter was signed by 21 public, union, and private pension funds, including the California Employees system.
Anne Hansen, deputy director for the CII, said "we were very pleased" with Chrysler's response to Mr. Kerkorian. She said the council was told Chrysler had passed a copy of the pension funds' letter on to Mr. Kerkorian.
Now the council is sitting tight to see what Mr. Kerkorian's next action will be, following Chrysler's rebuff.
Mr. Kerkorian's prepared response to Chrysler put the matter before shareholders to see if they would accept his $55-per-common-share offer. He also accused Chrysler of misrepresenting his position, and of not stating how it intends on building shareholder value absent his buy-out.
If the bid does fail, the CII is not likely to take any more action, Ms. Hansen said. "We're not going to meddle too much," she said.
Institutional shareholders say they generally are satisfied with how Chrysler's management is running the company, and spending its cash hoard.
"The Chrysler board is probably capable of putting in a prudent plan to accommodate shareholders," Mr. McManus of Independence said. But, the bid will make Chrysler's management more attentive to shareholders, he said.
Christopher McHugh, portfolio manager for Turner Investment Partners, Berwyn, Pa., said that although Chrysler has a few problems, its goal of having $7.5 billion in cash is "setting the stage for the next move up" in product development.
Nonetheless, he said, "a dividend increase would be very welcome to shareholders." In the near term, Chrysler has a few problems, including missing first-quarter earnings estimates, he said. And, the second quarter "will be tough" earnings-wise for the automaker, he said.
Turner hasn't altered its Chrysler common stock holdings either way following Mr. Kerkorian's offer. Its owns a little bit more than it did at year end, he said, when it owned about 461,000 shares, according to CDA Spectrum.
Mr. Glickenhaus said he would have supported the buy-out, if Chrysler's management had supported it. "I think they're doing one of the outstanding jobs in America," he said. Nonetheless, he said it's likely Chrysler will raise its annual dividend to a minimum of $2 per share - and soon. Chrysler's current dividend is $1.60 per share.
Mr. Bach said he doesn't care what the company's dividend is, as long as the price of the stock goes higher. If the company uses the cash to finance research and development and investment in the company, that's appropriate.
Shareholders contacted disagree with Mr. Kerkorian's contention that Chrysler's targeted cash position of $7.5 billion is too high.
"These auto companies use up a hell of a lot of cash" in a downturn in the economy, said Mr. McManus. They can "burn billions of dollars in a recession."
Mr. Kerkorian disagrees. He said in a statement that in its worst downturn, during the Gulf War, Chrysler spent only $4 billion over a three-year period.
The subject of how Chrysler will boost its stock price if Mr. Kerkorian fails to get financing is likely to be a focus of meetings with between Chrysler management and large shareholders, which will be taking place prior to its annual meeting May 18.
Mr. McManus of Independence said Chrysler executives are just "exhibiting good sense and good communication" in meeting with its large shareholders.