Eaton says Germans not in control at DaimlerChrysler

Dee-Ann Durbin

Friday, Dec. 5, 2003 | 9:48 a.m.

WILMINGTON, Del. -- Former Chrysler chairman Robert Eaton testified Thursday that the 1998 merger he negotiated with Daimler-Benz was not a takeover of Chrysler.

Eaton also told a federal judge that the new DaimlerChrysler AG had the right to change its corporate structure -- even if that meant placing more Germans than Americans on company boards. He also said the merger has probably saved Chrysler from going bankrupt.

"This was a very, very emotional thing for me," Eaton said. "But I believed very strongly and I believe today that (the merger) was the right thing for the employees, the shareholders, everyone involved."

Eaton's testimony came on the fourth day of the federal trial in which Chrysler shareholder Kirk Kerkorian is asking for more than $1 billion in compensatory damages from DaimlerChrysler. Kerkorian says he was duped into losing an acquisitions fee because Daimler-Benz falsely characterized its takeover as a "merger of equals."

Kerkorian's argument rests partly on a 2000 Financial Times article in which DaimlerChrysler Chairman Juergen Schrempp was quoted as saying he never meant for the merger to be one of equals, and that the deal was billed that way "for psychological reasons." Schrempp also described Chrysler as a "division" of Daimler.

Eaton said he was angered by the article and never recalled Schrempp using the word "division" when they were negotiating the merger. The article was published after Eaton retired from Chrysler in 2000, and he said he never spoke directly with Schrempp about it.

"If he said that he was after control of Chrysler, obviously there wouldn't have been a business agreement put together," Eaton said. "Chrysler was not for sale."

Still, Eaton rebuffed Kerkorian attorney Terry Christensen's attempts to show that the merger was actually a takeover.

Christensen pointed out that DaimlerChrysler's management board, which makes most operating decisions but can't hire and fire employees, will have 11 German members and one American member starting January 2004.

"Why would you do that? Why would you be fighting for that?" Christensen said.

Eaton said he hadn't expected the board changes to be so dramatic, but acknowledged that the deal he signed allowed for change.

"I can assure you I would not negotiate a deal that left the company structure in place for perpetuity," he said. "Every company has to change and react to the marketplace."

Eaton also pointed out that the supervisory board, which can hire and fire executives, has five German and five American members.

Kerkorian, whose Tracinda Corp. was the largest Chrysler shareholder at the time of the merger, claims Daimler-Benz avoided paying him an acquisition fee of up to 62 percent on his shares when the companies merged.

DaimlerChrysler maintains Kerkorian -- also a movie industry and casino investor -- supported the deal and grew disgruntled only when his shares lost value.

DaimlerChrysler attorney Jonathan Lerner suggested Wednesday that Kerkorian didn't really care whether the DaimlerChrysler management board was split evenly between Germans and Americans, as long as his trusted contact Eaton was still with the new company.

Kerkorian, who finished testifying Wednesday, maintained that he was always concerned about the makeup of the management board, even if he didn't pay close attention to details of the business combination or the operations of the new company.

Kerkorian also said he didn't realize that Eaton would not be replaced when he stepped aside after the agreed-upon three years as co-chairman of DaimlerChrysler, leaving Schrempp as the sole chief executive.

DaimlerChrysler paid $300 million in August to settle similar claims from other investors. DaimlerChrysler said that suit was groundless but it settled to avoid a jury trial.

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