Mr. Kerkorian bellies up to the Chrysler bar...again

4/7/07

FULL DISCLOSURE: I REMAIN LONG THE JANUARY ’08 DCX 80 PUTS.

On Thursday, Kirk Kerkorian made a $4.5 b bid for Chrysler though his investment company, Tracinda, causing DCX to trade up $4.23 to $84.80. Obviously, I have a few comments:

• I, and many other observers, should have seen this one coming, given both Kirk Kerkorian’s and Jerry York’s histories with Chrysler and their frustration at being able to do very little with their recent GM foray.
• The $4.5 b bid is substantially below the numbers that were bandied about as possible Chrysler bids earlier in the week, which reached as high as $9 b, with more sober numbers clustering around $6-$7 b. In my opinion, all are too high, even the $4.5 b.
• Tracinda’s bid is lower than it looks. The deal is contingent on, inter alia, DCX sharing Chrysler’s $15 b in unfunded ORB (“other retiree benefit”) obligations. How much would Tracinda like DCX to kick in? Note that GM was asking for a $1 b contribution in its quasi-bid for Chrysler. One could easily see Tracinda asking for a contribution large enough to make the net price for Chrysler negligible, which would be about right for Chrysler.
• Jerry York reportedly was not given the same detailed data that other bidders for Chrysler received and consequently was forced to do his own research which, given Jerry York’s typical approach, he would have done anyway. Reportedly, he finds value in Chrysler’s minivans, pickup trucks, and SUVs, primarily Jeeps. Jerry York probably knows the car business as well as anyone, but I have a hard time concurring with his conclusions. Why?

1. Chrysler is a strong, though no longer dominant, player in minivans. More important, the minivan market is shrinking. In 2000, 1.4 million minivans were sold in this country. In 2006, 971 thousand minivans were sold. So even if Chrysler were still the dominant player in minivans, this would be a difficult franchise on which to base one’s company.
2. The SUV market is imploding in favor of crossovers. Jeep hasn’t been a strong performer in SUVs for a number of years and has almost completely missed the crossover market.
3. I agree pickup trucks are a strong product, the, or among the, strongest sellers at all of the Big 3. But the Dodge Ram finishes third among the Big 3’s pickup truck offerings. 3rd out of three does not make one a franchise player.
   
   Mr. York apparently agrees with me that the rest of Chrysler’s product lines are weak performers. So if he is arguing, and I don’t think he is, that Chrysler’s only value lies in minivans, SUVs, and pickups, I would agree, with the exception of the SUV portion of the argument.

The Pontificator