`This Is Just The Second Inning Of A Nine Inning Game'

Is Los Angeles billionaire Kirk Kerkorian scrapping his attempts to take over Chrysler Corp.? At first, that's the way it looked on May 31, when Kerkorian announced that he had withdrawn his $20.5 billion bid for the company. But Kerkorian also announced that he had hired Wasserstein Perella & Co. as his investment banker. And Alex Yemenidjian, Kerkorian's right-hand man, sounds every bit as defiant as the day Kerkorian first made his offer for the auto maker: "We're not going away, this is just the second inning of a nine-inning game," Yemenidjian says. "We're in it for the long haul."

Bluff? Bluster? Or is Kerkorian getting ready for another gambit? Kerkorian's troops contend it's a case of the latter: They say they're still sounding out potential partners and financial sources, including at least one overseas carmaker, and foreign lenders.

Wall Street, which has never embraced Kerkorian's underfinanced $55 a share bid for the nation's third-largest car company, figures Kerkorian may try to use Wasserstein Perella dealmaker Bruce Wasserstein as his emissary to Chrysler Chairman Robert J. Eaton. The goal: to cut a deal to dump Kerkorian's $1.6 billion, 10% stake in Chrysler. "Kerkorian wants to continue conversations with Chrysler, and Wasserstein gives him credibility," says arbitrageur George A. Kellner of Kellner Dileo & Co. "But Kerkorian will have to come up with real backing before anyone is going to pay attention to him." Yemenidjian denies the shares are for sale.

STATE OF FLUX? Sources in the Kerkorian camp say that they're still working on a consent solicitation, which would allow them to directly contact Chrysler's shareholders to oust board members who have so far resisted their overtures. The sources say Yemenidjian has talked with German carmaker Daimler Benz, among others. Wasserstein Perella, meanwhile, will reexplore strategies--everything from a revamped takeover bid to trying to force Chrysler to raise its dividend, which has been doubled, to $2 per share, since December. "We wouldn't take someone on if we felt we were being used as a face-saving device," says Michael Biondi, managing director at Wasserstein. "We know they're in this for the long haul."

The difficulty: Few outsiders believe that Kerkorian ever will mount a credible takeover threat. Daimler Benz and other potential industrial partners deny any interest. Indeed a source close to Chrysler's board claims that in late May Daimler signed a written pledge not to buy Chrysler shares.

Eaton, moreover, has convinced Wall Street and many major shareholders that using most of the company's $7.3 billion cash hoard for a leveraged buyout would leave the carmaker dangerously vulnerable in a downturn. For a bid to succeed now, Kerkorian would need to double the $3 billion in additional equity he had planned to ante up, says Theodore Shasta, vice-president at Loomis Sayles & Co., a major shareholder.

Other complications would make a revised bid even more problematic. Friends and former Chrysler executives say Eaton and other top managers have vowed not to stay on if Kerkorian succeeds in putting together a buyout. Since the executives have done well--and Kerkorian had planned to include them in his bid--their threatened departure might deter potential investors from backing Kerkorian.

PRESSURE POINT. Lining up financing has gotten tougher as well. Under terms negotiated in early May, a new $8 billion line of credit for Chrysler's finance subsidiary would have to be renegotiated if the company changed hands. And a highly leveraged parent company would make banks shy away from further lending. Analysts and Chrysler shareholders believe Kerkorian would be forced to sell Chrysler Financial Corp., placing the carmaker at a marketing disadvantage to major rivals, which all run their own finance operations. "Without [more] money, this bid is stillborn," says one investment banker.

The Kerkorian forces adamantly deny they will try to cut a deal for their shares. "Absolutely not. We have not been hired to sell his stake," growls Ellis Jones, the Wasserstein Perella managing director who signed on Kerkorian as a client. But even if Kerkorian does not sell out or mount another takeover, Chrysler executives can't ignore the gambling tycoon, given his huge stake. Whatever else Kerkorian does or does not do, he seems sure to keep the pressure on Chrysler's management to boost the company's share price. "I don't think anybody here believes he's going away," says one Chrysler official. Not right away, in any case.

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