Kerkorian testifies he was deceived by Daimler

Randall Chase

Tuesday, Dec. 2, 2003 | 11:05 a.m.

WILMINGTON, Del. -- Billionaire investor Kirk Kerkorian testified today that he never would have supported the deal creating DaimlerChrysler if it had not been portrayed as a "merger of equals" between the American and German automakers.

Kerkorian, who is suing the company for more than $1 billion in compensatory and punitive damages, said that in his dealings with former Chrysler chairman Robert Eaton there was no indication the Daimler Benz-Chrysler combination was anything else.

"It was called a merger of equals. ... It was always called a merger of equals," Kerkorian testified in federal court.

Kerkorian claims Daimler-Benz officials proposed such a merger but secretly organized a Chrysler takeover. As a result, Kerkorian claims, Daimler-Benz avoided paying him an acquisition fee of up to 62 percent on his shares when the companies merged. Kerkorian owned 14 percent of Chrysler's shares at the time of the merger, making him the company's primary shareholder.

DaimlerChrysler maintains Kerkorian supported the deal and grew disgruntled only when his shares lost value.

On Monday, Kerkorian's attorney, Terry Christensen played excerpts from a 2000 interview that DaimlerChrysler chairman Jurgen Schrempp gave to the London-based Financial Times, which quoted Schrempp as saying he never meant for the merger to be one of equals, and that the deal was billed that way "for psychological reasons."

In the interview, Schrempp describes Chrysler as a "division" of Daimler and said the German-heavy management "was always the structure I wanted."

Kerkorian said today that he would not have supported the deal if the article had appeared at the time, and that he was very surprised and upset by the report.

Kerkorian said trust, a critical issue for him in his business dealings, was lacking in the discussions of combining the two automakers.

"You have to have trust and honesty," Kerkorian said. "Instead if you get deceit and fraudulence, which I feel has happened here with Daimler, it doesn't work."

Kerkorian said he trusted Eaton, his only contact with Chrysler management.

He testified that Eaton came to him in early 1998 to discuss the proposed deal. Kerkorian said Eaton told him he needed Kerkorian's Tracinda Corp., which owned about 89 million Chrysler shares, to support the deal or the Chrysler board would not go along.

"It was very important that we go along with it," Kerkorian testified.

Kerkorian also said he understood a merger of equals to be when two companies are looking at each other to form an entity that has "synergism," which he described as "two plus two equals five."

Kerkorian said he supported the merger because he thought it had such synergy.

"I frankly thought it would be a good company, I was happy," Kerkorian said.

He disputed claims that he became unhappy with the deal because of the performance of the company's stock.

Kerkorian controls Las Vegas casino-resort company MGM MIRAGE and the MGM movie studio in Los Angeles. He was questioned by his attorney for about an hour and 15 minutes. The defense was expected to cross-examine him later today. Eaton and Schrempp are scheduled to take the stand later in the trial.

DaimlerChrysler paid $3 million in August to settle similar claims from other investors. DaimlerChrysler said that suit was groundless but it settled to avoid a jury trial. In this trial, there is no jury and the judge will decide the case.