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June 3, 2003

USA: Executive’s notes describe Daimler-Benz and Chrysler combination as take over, not merger – report

Notes written by strategy chief Ruediger Grube three months before Daimler-Benz combined with Chrysler Corporation describe a takeover rather than a merger, according to documents released last month in a federal court in Delaware, Bloomberg News said. The Grube notes conflict with the public statements of executives in later months and may support assertions in a lawsuit by billionaire investor Kirk Kerkorian and other shareholders seeking as much as $US15 billion from DaimlerChrysler AG, the news agency said.

By bcusack

Notes written by strategy chief Ruediger Grube three months before Daimler-Benz combined with Chrysler Corporation describe a takeover rather than a merger, according to documents released last month in a federal court in Delaware, Bloomberg News said.

The Grube notes conflict with the public statements of executives in later months and may support assertions in a lawsuit by billionaire investor Kirk Kerkorian and other shareholders seeking as much as $US15 billion from DaimlerChrysler AG, the news agency said.

Kerkorian still owned a million DaimlerChrysler shares, when he made a court deposition in December, and is also the majority shareholder in the Metro-Goldwyn-Mayer movie studio and the MGM-Grand casino in Las Vegas, Bloomberg News said.

The report added that the notes say chief executive Juergen Schrempp and other executives gained control and avoided paying a takeover premium by calling the 1998 transaction a merger of equals.

According to Bloomberg News, the $US36 billion combination hasn’t boosted returns as executives predicted. The Tuesday report noted that DaimlerChrysler shares have fallen 62% to 27.33 euros since November 17, 1998, the first day of trading, a larger slide than the 15% drop in the Standard & Poor’s 500 Index and the 35% decline in Germany’s DAX Index.

The company would need years to recover from a $15 billion verdict, Commerce Trust money manager Doug Koester told Bloomberg News. “Any hit of that size would be a hit to their earnings,”

Koester, who helps manage $8 billion in bonds, including debt of DaimlerChrysler and rival car makers Ford and General Motors, reportedly said.

According to Bloomberg News, Grube’s notes from a meeting of Daimler executives contain the handwritten phrase, “financial it is a takeover,” jotted months before the companies agreed to the combination in May 1998.

Bloomberg said that, in testimony included in 12,628 pages of documents in Wilmington, Delaware, Schrempp and other company officials said there was no deception.

The documents were obtained by Bloomberg News after Bloomberg filed papers to have the records unsealed.

“The case comes down to intent and that’s difficult to prove in any case,” Widener University Law School professor Larry Hamermesh, a specialist in Delaware corporate law, told Bloomberg News. “It will be particularly hard to prove in this case because the line between a merger of equals and an acquisition is anything but crystal clear.”

Bloomberg News said the case is scheduled to begin on December 1 in federal court in Wilmington, Delaware. Kerkorian, who once owned 13.75% of Chrysler’s shares through his Tracinda Corp. holding company, is seeking $3 billion in damages, the news agency’s report added.

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