Fidelity Investments' near doubling of its stake in Chrysler Corp. to 13%, just below that of financier Kirk Kerkorian, is making some institutional shareholders in the automaker nervous.
They worry Fidelity and Mr. Kerkorian could join forces to coerce management into funneling more of the company's $7.5 billion cash hoard to shareholders or take the company private. They also fear the market impact if Fidelity were to liquidate most or all of its stake.
Still, the majority believes Boston-based Fidelity is in the stock for the long term, like they are.
John B. Neff, managing partner of Wellington Management Co., Boston, and portfolio manager of the $13 billion Vanguard/Windsor fund, Chrysler's second largest institutional shareholder, said: "Kerkorian has a rather different agenda. Fidelity owns (Chrysler) for the same reason we do. All this Machiavellian hocus-pocus in the press is overblown. It's undervalued and it's going to go up. They have a 14% position in a lot of companies."
He said Fidelity is "doing the same thing we are - working for the shareholders."
Windsor is at its maximum position in Chrysler. Chrysler represents 6% of the fund, and Windsor owns 3.9% of the outstanding stock.
Brian Arena, portfolio manager and auto analyst for the $22 billion State of New Jersey Common Pension Fund, Trenton, which owns 3.8 million Chrysler shares, said: "I don't see any reason to be nervous. Fidelity is building its position. Kerkorian is building his position, and it's the best run car company in the world. I don't think the Kerkorian stake is a concern - and Fidelity is buying at this level.
"They don't both have the same objectives. Tracinda (Mr. Kerkorian's company) wants an immediate cash-out. Fidelity wants a well-run company. Anybody who owns the stock other than Kerkorian would be happy with Fidelity's stake," Mr. Arena said.
But among the troubling scenarios is one from Seth Glickenhaus, senior partner of Glickenhaus & Co., New York, which owns 5.5 million shares, according to CDA/Spectrum 13(f) filings, ranking among Chrysler's top 10 institutional shareholders. The firm manages $3 billion.
"Kerkorian indicated he got financing to go up to 14.9%. If Fidelity wants to go along with Kerkorian, between them they would have 28% of the company. Of the other 72%, there's no question they could get 20-odd percent to go along and elect the directors they want."
Mr. Glickenhaus said he doesn't know if Fidelity would go along with Mr. Kerkorian. Fidelity officials wouldn't comment for this story.
But if Fidelity did ally itself with the billionaire investor and try to replace current management with Lee Iacocca - the former Chrysler chairman who unsuccessfully tried to take over the company with Mr. Kerkorian's Tracinda Corp. earlier this year -Mr. Glickenhaus is not sure that would be positive for the company.
"Present management has done an outstanding job. Iacocca is a brilliant auto man but he has to get his subordinates in place," such as Robert J. Eaton as president and Robert A. Lutz as financial officer, he said.
If Chrysler is taken private, there will no longer be public shareholders who make a point of owning Chrysler cars, he said.
Also, "as a private company you don't get the natural publicity you get as a public company..... Visibility is extremely important to an auto company," Mr. Glickenhaus said.
Of course, if there were such a proposal and its terms were sweet enough, he might be copacetic. "If they want to pay us $75 a share to get rid of us it's a great positive." At presstime, the stock was trading at $52.
Odette Galli, vice president of J&W Seligman Inc., New York, which runs $8 billion, agreed a leveraged buy-out might not be a positive move. The firm owned Chrysler until early this year but sold the stock based on concerns about a slowdown in earnings and the economy.
"If I were a long-term shareholder, I would be concerned about it. If they force an LBO I don't think that's in the long-term best interests of the company. The debt on the balance sheet would restrict the company's ability to grow," Ms. Galli said.
"Kerkorian doesn't want to run the company. He wants to buy it out and bring it public again. For the company that's not the best thing. Our philosophy is we buy and sell stocks based on long-term fundamentals. The possibility of a buy-out is not a good enough reason for us to buy," Ms. Galli said.
"Obviously Kerkorian and Fidelity see cash accumulating and that's very appealing and they want the company to do something with it.
"That's certainly a risk and that's probably what their intentions are, but I don't know. We believe management's doing the right thing. .*.*. We support management's decision to hold onto cash for future growth," she said.
Brad Roberts, senior vice president and portfolio manager of Lynch & Mayer Inc., a New York money manager and former Chrysler shareholder, said Fidelity has a history as an aggressive player in distressed securities and could force some changes.
"When you have their clout, things can happen," he said.
"The two of them together make a pretty formidable team. If they were to team up on an issue, it might yield results which would hopefully be positive for shareholders. I do know they share a common goal to make money. You know the ultimate motivation but you don't know what's happening near term."
And what of a sell-off by Fidelity?
Ronald Stribley, vice president and portfolio manager of Glenmede Trust Co., Philadelphia, said: "Fidelity getting out on any given day because they have a big position could do a lot of damage to the stock. They don't typically. They're not day traders. They're too big to do that." Glenmede owns 500,000 shares of Chrysler.
Wellington's Mr. Neff is not worried about Fidelity eventually selling the stock.
"If (Chrysler) doesn't have much expectations built into it relative to earnings you can tiptoe out as easily as you came in. They acquired it without disturbing it, didn't they?"
As for Chrysler's cash, Mr. Neff said management is already on the record as saying it will use excess cash flow to raise the dividend. "There's a commonality between Kerkorian, Fidelity Management and Windsor." Within two to three quarters he expects the annual dividend to increase to $2.40 from $2., assuming $9 to $10 in earnings per share in 1996.
"That's more than adequate in my view," Mr. Neff said.