News: Analysis & Commentary: TAKEOVERS
THE CHRYSLER BID: ANY BACKERS OUT THERE?
Can Kirk Kerkorian and Lee A. Iacocca come up with financing for their $20.5 billion bid to buy Chrysler Corp.? Could be doubtful. Seven days after announcing their offer, the pair still had provided virtually no details on the deal's funding, even though they need close to $12 billion in debt and $3 billion in equity to make it work. Then, on Apr. 19, Bear, Stearns & Co., Kerkorian's longtime investment banker, said it will play no role in the effort--a blow to the deal's credibility.
Even before the Bear Stearns move, bankers were growing increasingly skeptical that the dealmakers could line up bank financing quickly. In all likelihood, only a major U.S. bank or banks would have the credibility to lure in enough other lenders to make the deal work. But even as Kerkorian & Co. shop for a backer, regulators are warning U.S. banks that they may be lending too aggressively. "We will be spending an increasing amount of time talking to bankers about our concerns [about loan quality]," warns Comptroller of the Currency Eugene A. Ludwig.
The other major problem for Kerkorian and Iacocca: Many of the biggest U.S. banks have close ties to Chrysler and are unlikely to antagonize a major client to do a deal that may not come together. "We support our clients. We don't turn around and bite them," says one banker. The size of the deal also may be working against it. "It's a big number," says Stewart M. Boswell, managing director of NationsBank Corp.'s advisory-services group.
Certainly, Kerkorian and Iacocca could yet come up with the money they need. Banks still have big appetites for acquisition financing, and many bankers say they would be more eager to lend if the pair could get an industrial partner to take a stake in Chrysler. Analysts think Peugeot and Fiat are among their potential partners. Kerkorian's spokesman could not be reached for comment.
"JUST A LITTLE PIECE." But the bankers' reluctance still begs the pesky question: Who will go first? Chemical Bank, the nation's leading bank-loan syndicator, would seem a prime candidate. But in late 1991, it merged with Manufacturers Hanover Corp., which led the 1979 government bailout of Chrysler--and became Chrysler's lead bank. That makes it unlikely to back Kerkorian. J.P. Morgan & Co. and Chase Manhattan Bank also have strong ties to Chrysler. Chemical, Morgan, and Chase all declined to comment publicly.
What banks don't have close links to Chrysler? Citibank, for one. And while Bankers Trust and BankAmerica Corp. have done business with Chrysler, they also have worked for Kerkorian in the past. All three banks declined public comment. But sources say they are unlikely to get involved in a hostile bid.
Even if a big bank or two jump in, a syndicate large enough to fund the Chrysler deal might have to include more than 100 lenders all told. That's because few banks now will hold more than $75 million worth of any one loan--vs. $150 million in the 1980s. "Everybody wants just a little piece," says Christopher L. Snyder, president of Loan Pricing Corp.
DRIFTING DOWN. Chrysler, meanwhile, is working hard to fend off the bid. It has hired three investment banks--Morgan Stanley, Salomon Brothers, and CS First Boston--to help craft strategy. And CEO Robert Eaton said at a recent press conference that the company won't give in to Kerkorian. "Obviously, the board did and will consider any offer out there," he said, adding that "we're going to continue running the business exactly the way we have been." Also, in daily conversations with dozens of bankers, Thomas P. Capo, Chrysler's treasurer, and other top finance officials are playing up the deal's risks.
What are the bid's chances now? One former top Chrysler executive puts them at 50-50--and says he sold his stock the day of the announcement. "I genuflected to the west, thanked [Kerkorian] for nine points, and got out," he says. That was smart: The stock has steadily drifted down since then. Maybe the market is sensing something Kerkorian hasn't--yet.By Kelley Holland in New York and David Woodruff in Detroit, with Phillip L. Zweig in New York