Jerome B. York's move to Tracinda Corp. gives Kirk Kerkorian's effort to gain control of Chrysler Corp. greater credibility, institutional shareholders say.
In fact, some say the hiring of Mr. York indicates Mr. Kerkorian is adopting a long-term strategy, not just a short-term effort to get the company's stock price up for a quick profit.
Whatever Mr. Kerkorian's ultimate goals, he has to convince only 15 major Chrysler shareholders of the soundness of his plans - they control more than 50% of the vote.
In interviews, most of the institutional investors said they are keen on speaking with Mr. York about his ideas to improve the value of Chrysler, based in Highland Park, Mich. But they said they generally believe management has done a good job and they see no obvious major restructuring necessary.
Still, they think Mr. Kerkorian will continue his battle. One said Mr. Kerkorian might position the company for a takeover by another auto company.
"It's not a short-term thing where you will see results soon," Chet Needelman, chief executive officer, Palley-Needelman Asset Management Inc., Newport Beach, Calif., said of Mr. Kerkorian's designs for Chrysler. His company owns 2.6 million shares, or 0.7%, of Chrysler.
Said Richard Koppes, deputy executive officer and general counsel of the $80 billion California Public Employees' Retirement System, Sacramento: "Before, when Mr. Kerkorian made an offer, there didn't seem to be much to it.
"But now with Mr. York, that's different. He brings a lot to the table, and we'd be interested in exploring that." He added, however: "We've been pleased with Chrysler and with management and what they've done."
CalPERS owns about 1.8 million shares, or 0.5%, of Chrysler.
Mr. York, who left IBM Corp. earlier this month to join Tracinda as vice chairman, worked at Chrysler for 14 years. He was the automaker's chief financial officer when he left in 1993 to become CFO at IBM. After joining Tracinda, Mr. York said he wants to have a dialogue with Chrysler's major institutional shareholders.
"He's impressive," said Mr. Koppes. "We would definitely meet with him."
"We have a long history of meeting with Chrysler management." Referring to Robert J. Eaton, Chrysler chairman and chief executive officer, he said: "We've met several times with Eaton and we were very impressed. We've been generally pleased with management, but we have a fiduciary duty to look for improvement."
Mr. Koppes said CalPERS hasn't been contacted by Mr. York. Institutional shareholder support would be important to change the course of Chrysler or win control of the board through a proxy fight.
Proxy support may be easy
Palley-Needelman's Mr. Needelman noted how only a few institutions control the majority of Chrysler stock, which could make it easier to seek support in proxy contests.
"Chrysler has many shareholders," Mr. Needelman said. "But the 15 largest shareholders and Mr. Kerkorian control more than 50% of the vote."
Through Tracinda, Mr. Kerkorian owns 13.6% of Chrysler's outstanding stock. Fidelity Management & Research Co., Boston, through its various funds, owned 13.04% as of Aug. 31, said Scott Beyerl, a Fidelity spokesman. One money manager said Fidelity's holdings may have risen to 14% to 16% since then.
Glickenhaus & Co., New York, is also one of Chrysler's top 10 shareholders. The firm owns 5.4 million shares, or 1.5%, of the automaker, said Seth M. Glickenhaus, senior partner.
Even before Mr. York joined Tracinda, Chrysler management already had planned a meeting with major shareholders this fall, although no date was set.
Shareholders interviewed doubt Mr. Kerkorian will bid to buy the company. Rather, they see him seeking greater influence or control through proxy fights and electing directors such as Mr. York to the board.
"I doubt they could get financing for a bid of 65 or 70" dollars per share, the amount shareholders would demand, Mr. Glickenhaus said. Chrysler's recent stock price was $55.50.
"I think Jerry would make an outstanding director. I would support him," he said. But he added, "I would like to find out what he has in mind" for Chrysler. "Is he coming in a friendly way, or in as a wedge to take over the company? I think the current management has done one of the most marvelous jobs in American automobile history."
Mr. Needelman said he would want to talk with Mr. Kerkorian's group and Chrysler management before deciding whether to support Mr. York for a board seat.
"He may be a contributing factor or a disrupting factor" on the board, he added. He did note Chrysler stock is up 10% since Mr. York joined Tracinda, indicating shareholders are pleased with the development at Mr. Kerkorian's company.
A long-term investor
Mr. Needelman said Mr. Kerkorian is a long-term investor in Chrysler.
"When Mr. Kerkorian took his position four years ago we felt he'd be a big player and be there a long time," Mr. Needelman said.
"There is nothing that has made him as much money as this Chrysler stock," he said, estimating the gain at $350 million.
"To get Mr. York, Mr. Kerkorian had to buy out his stock options at IBM," costing about $25 million, Mr. Needelman said. He sees the spending as a sign of Mr. Kerkorian's seriousness to gain some influence on Chrysler.
"He (Mr. Kerkorian) will be a factor to contend with for a long time," Mr. Needelman added.
But he said Mr. Kerkorian also needs an exit strategy. He speculated Mr. Kerkorian could do with Chrysler what H. Ross Perot did with General Motors Corp., forcing the company to buy back his stock at a premium.
Mr. Needelman suggested Mr. York may have little left to cut at Chrysler if he would come back only two years after leaving the company, because "he cut out a lot of fat" while he was there.
"So I think institutional investors are barking up the wrong tree if they think he can cut a lot in costs."
Mr. Needelman doubted Chrysler has much break-up value; what remains of the company is essential to its competitive ability. "Anything sold would weaken the company," he added.
"Chrysler management has done a good job." Mr. Needelman added. "You have a very healthy, vibrant company."
A strategic buyer for Chrysler?
Mr. Kerkorian is in a better position to attract a strategic buyer for Chrysler, Mr. Needelman said. He believes European automakers would be more attracted because they would benefit more from the distribution system and product line.
Only one Chrysler stock holder interviewed - Quentin Faulkner, managing partner, Loomis, Sayles & Co., Boston - doubted a directorship for Mr. York would improve the Chrysler board. He also doubted Mr. Kerkorian, even with Mr. York, could improve Chrysler shareholder value.
"I think the company has been run brilliantly," he said. "I'm not sure a whole lot can be done to enhance shareholder value that hasn't been done."
But Timothy E. Keefe, assistant vice president, Federated Investors, Pittsburgh, said he would support Mr. York for the board.
"I think it's a huge move," Mr. Keefe said of Mr. York joining Tracinda. Mr. Keefe said Chrysler has almost $10 billion in fairly liquid assets, including $7.2 billion in cash, which "is roughly half the company's market value."
"I don't think (Mr. Kerkorian) will try to buy it," Mr. Keefe said. "But he will try to get Mr. York on the board to get a better policy for managing cash." Mr. Kerkorian will try to get a lot of that cash to shareholders, he added. According to Mr. Keefe, Mr. York has said he would need only about $5 billion as a cushion for a slowdown in auto sales.
"I think (Messrs. Kerkorian and York) are positive pressure," Mr. Keefe said. Mr. Kerkorian will "keep (Chrysler) focused" on the auto market and shareholder value and away from acquiring non-related businesses, Mr. Keefe added.
After Tracinda and Fidelity, the institutional investors with the largest holdings of Chrysler stock, as of June 30, according to the CDA/Spectrum report of CDA Investment Technologies Inc., Rockville, Md., are:
Wellington Management Co., Boston, 16.5 million shares, or 4.5%; Bankers Trust New York Corp., 10.7 million shares, or 2.9%; Wells Fargo Nikko Investment Advisors, San Francisco, 7.9 million shares, or 2.1%; and the Michigan state treasurer, manager of the state's retirement systems, 7.4 million shares, or 2%.
Others are Prudential Insurance Co. of America, Newark, N.J., 7.1 million shares, or 1.9%; Tiger Management Co., New York, 4.8 million shares, or 1.3%; TCW Group Inc., Los Angeles, 4.6 million shares, or 1.2%; Equitable Cos., New York, 4.4 million shares, or 1.1%.
Also Delaware Management Co., Philadelphia, 3.6 million shares, or 1%; Soros Fund Management Co., New York, 3.4 million shares, or 0.9%; Mellon Bank Corp., Pittsburgh, 3.4 million shares, or 0.9%; Comerica Inc., Detroit, 3.3 million shares, or 0.8%; Loomis, Sayles & Co., Boston, 3.3 million shares, or 0.8%; and College Retirement Equities Fund, New York, 3.2 million shares, or 0.8%.
