CEO Says He Offered to Quit to Effect Merger
DaimlerChrysler Chief Executive Juergen Schrempp testified Monday that he offered to resign as head of Daimler-Benz to make the German automaker’s 1998 merger with Chrysler Corp. work.
The testimony in financier Kirk Kerkorian’s $3-billion fraud suit may bolster Schrempp’s contention that he had no secret plan to gain control of Chrysler. Kerkorian’s lawyers recalled Schrempp to answer questions about notes that they claim show executives knew the marriage of the automakers was a Daimler-Benz takeover rather than a merger of equals.
“I said that, if necessary, I would step down” to ease concerns about who would control the combined company, Schrempp said, wrapping up his testimony before U.S. District Judge Joseph J. Farnan Jr. in Wilmington, Del. Farnan is hearing the case without a jury.
Kerkorian claims Daimler-Benz cheated investors by disguising a Chrysler acquisition as a merger. Farnan halted the trial Dec. 16, after DaimlerChrysler lawyers acknowledged they failed to give Kerkorian’s attorneys notes from former Chrysler finance chief Gary Valade. The carmaker agreed to let Schrempp and other executives return for questioning about the notes.
Kerkorian, once Chrysler’s largest shareholder, is seeking damages for stock losses stemming from the $36-billion merger, which hasn’t boosted returns as predicted. He said he would have sought a higher price if he had known that former Daimler-Benz executives would hold most top jobs and effectively control the company within five years.
Shares of DaimlerChrysler, the world’s fifth-largest automaker, have fallen by about half since the November 1998 merger. The automaker said Kerkorian wanted a scapegoat because the shares tumbled 48% since the Nov. 17, 1998, merger.
DaimlerChrysler estimates Kerkorian, who owned 65 million shares at the time, has made $2.7 billion from shares sold after the transaction and from other gains. He now owns about 1 million shares. Stuttgart-based DaimlerChrysler’s German shares have risen 14% since the trial started Dec. 1.
In the notes, Valade wrote that former Chrysler CEO Robert Eaton said in a March 2, 1998, meeting with Schrempp and other Daimler executives that the combination was “structurally almost a takeover.”
Schrempp said Monday he was “puzzled” by the notation because it followed notes about his discussion with Eaton about who should head the new company.
“I don’t see why that would have been there,” he said. “I wasn’t motivated by that. We wanted to find a way to do it together.”
Still, the notes indicate that Chrysler executives were concerned that incorporating the new company in Germany would make it difficult to convince investors and employees that Daimler-Benz wasn’t taking control of Chrysler. Valade’s notes said Schrempp offered at the meeting to “leave” if Daimler- Benz’s board thought a resignation would alleviate those fears.
Kerkorian attorney Terry Christensen also questioned Thomas Stallkamp, a former Chrysler president and DaimlerChrysler management board member, about his contributions last year to the book “Getting Bigger by Growing Smaller.”
“Within a period of 11 months, the Chrysler management team was retired, fired or otherwise removed from the board,” Christensen read from a passage in the book. “The acquiring company prevailed in the long run and the experiment for a merger did not last a year. In the end, power and authority went to the company that paid for the acquisition.”
Stallkamp said the quote did not mean that the merger was really a takeover. “Each side had equal authority,” he said. “One side did not exercise it. It was our intent to run it as a merger of equals.”
