- The Washington Times - Sunday, April 8, 2007

DETROIT (AP) — One of the keys to Kirk Kerkorian’s $4.5 billion bid for Chrysler is cooperation from the United Auto Workers, which could get an ownership stake in the troubled automaker.

But it’s not clear how much the union might be willing to give the billionaire investor — or even if he is the best candidate for the union’s support.

“I think you’ll see a lot of posturing out there,” George Magliano, an auto analyst at consulting company Global Insight, said on Friday. “But the union has shown they can work with people.”

Others, however, are skeptical of how much UAW is willing to concede as it enters this summer’s contract talks with General Motors Corp., Ford Motor Co. and DaimlerChrysler AG’s Chrysler Group.

“We remain concerned about the willingness of the … union to reach an agreement that enhances the competitiveness of Chrysler,” Prudential Equity Group analyst Mark B. Warnsman wrote in a note to investors.

UAW President Ron Gettelfinger hasn’t weighed in on Mr. Kerkorian’s bid. He kicked off the union’s national bargaining convention in Detroit last month with a warning: Just because the union has cooperated in the past, don’t take that as a sign of weakness.

Mr. Kerkorian’s wholly owned investment arm Tracinda Corp., which tried to buy Chrysler in 1995 and lost out when the company merged with Daimler-Benz three years later, made the cash offer Thursday. The bid came a day after the DaimlerChrysler shareholders’ meeting in Berlin, which was marked by simmering tension over the automaker’s future.

The Kerkorian bid is slightly lower than at least one competing offer from Canadian auto-parts supplier Magna International Inc., worth a reported $4.7 billion. Two private equity groups have also expressed interest.

Mr. Magliano said it’s difficult to say which would offer the best prospects for workers. At first, it was thought that a private equity group would surely break up the company, leaving job cuts and shuttered plants in its wake. But any buyer, he said, could try to make Chrysler work as a whole.

“The suitors bring all sorts of different talent,” Mr. Magliano said.

Mr. Kerkorian says he’s committed to a long-term approach to solving Chrysler’s problems.

The offer is subject to Chrysler securing a new contract with the union as well as a deal with German-based DaimlerChrysler on sharing the estimated $22 billion unfunded pension liabilities and health care costs of Chrysler retirees. Tracinda would take the company private and give UAW and Chrysler management the chance to own part of it.

A new contract “sounds a lot like labor giving up wages and benefits for equity participation,” wrote Craig Hutson, an auto analyst at the corporate bond research firm Gimme Credit, in a note to investors.

“The Tracinda offer expects a sharing of the legacy liabilities with DCX [DaimlerChrysler], which would mean the German automaker remains ‘on the hook,’ which may not be palatable to the board or DCX shareholders.”

UAW made concessions in 2005 to GM and Ford on their long-term retiree health care obligations.

Chrysler didn’t get the same concessions because UAW said the company was in better financial shape at the time. But UAW has re-examined the company’s books to determine whether it would grant the same deal.

A lack of health care concessions likely contributed to Chrysler’s current problems, analysts said.

Chrysler has struggled amid intense competition in the auto industry, especially as American buyers have flocked to more fuel-efficient vehicles. The maker of the Dodge Ram and the Jeep Grand Cherokee lost $1.5 billion last year and has announced 13,000 job cuts in North America and reduced production.

A deal with Tracinda would put Mr. Kerkorian in charge of Chrysler a decade after he said he was tricked out of billions of dollars in the 1998 deal in which Germany’s Daimler-Benz joined with Chrysler in the so-called “merger of equals.”

Long an active investor in automakers, he dumped the last block of what was once a nearly 10 percent share of GM late last year after pushing unsuccessfully for an alliance between GM, Nissan Motor Co. and Renault SA.

Tracinda said it would put down a $100 million deposit for exclusive bargaining rights and signaled that it’s ready to start a review of Chrysler’s financial books right away.

DaimlerChrysler has said a sale was among the options being considered for Chrysler, but stressed that all options remain on the table. Tracinda’s bid, analysts say, may be a starting point for a future offer.

“The proposed exclusivity agreement would appear to run counter to the stated DCX aim of maintaining maximum flexibility,” Prudential’s Warnsman wrote.

Allen Michel, a Boston University professor and an expert in mergers and acquisitions, said the offer for exclusive bargaining rights, if accepted, could spark lawsuits from other bidders and shareholders. He said that kind of clause is something that he hasn’t seen before in other acquisition deals.

At least two groups besides Tracinda and Magna reportedly have expressed interest in the Auburn Hills, Mich.-based Chrysler Group. Cerberus Capital Management LP and a consortium of investors led by Blackstone Group have each reviewed Chrysler’s finances and are expected to make bids.

Overall, Mr. Michel says, Mr. Kerkorian’s proposal is cleverly structured to involve the union.

“You then reduce the acrimony that one usually has between labor and management,” Mr. Michel said.

DaimlerChrysler shares climbed 5.3 percent Thursday to close at $84.80 on the New York Stock Exchange after rising to a new 52-week high of $84.90 earlier in the session. The market was closed for Good Friday.

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