Friday, April 6, 2007

Kerkorian Takes on Chrysler

Forbes reports that things are really heating up at the Chrysler firesale. Billionaire investor Kirk Kerkorian has offered $4.5 billion for Chrysler. This is significantly less than DaimlerChrysler's hopes of $8 billion but the mere presence of another bidder may force Cerberus and Blackstone to significantly raise their own bids.

The personal drama of Chrysler's crackup and subsequent firesale is really heightened by the addition of Kerkorian. His investment company lost a lawsuit against DaimlerChrysler in 2000 based on his assertion that management duped investors into supporting the merger with Daimler Benz. According to the article, he still has an appeal pending that seems to put the due-diligence probe that typically occurs after a bid of this magnitude underwater before it gets off the ground.

Kerkorian is enormously interested in American carmakers. He invested in General Motors and tried to convince management to form some sort of combination with Nissan and Renault in order to jumpstart growth. He made his personal fortune in other areas - gambling and plastics - but if Kerkorian succeeds in his titanic investments in automakers, he could remake the industrial landscape of America.

Kerkorian is a brilliant investor, but this investment strategy just doesn't look promising. Chrysler is hemoraging cash and marketshare at frightening rates. The company needs a fundamentally different strategy if it is to get more customers into its cars. Ultimately, the increased financial leverage applied under almost any conceivable acquisition of Chrysler may only increase the risk of catastrophic collapse. Lenders with billions of dollars in loans coming due will simply not tolerate continued losses, and the way for any American carmaker to achieve even modest profits is still unclear.

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