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Chrysler Ups Drawbridge Against $22.8 Billion Bid

But a foreign automaker could emerge as a new 'white knight'

CHRYSLER Corporation is facing the fight of its life now that it has rejected a hostile, $22.8 billion takeover bid by the elusive billionaire investor Kirk Kerkorian and its former chairman Lee Iacocca.

Many call the nation's third-largest automaker a corporate yo-yo, a company that routinely goes from boom to bust, crisis to crisis. In 1980, the automaker teetered on near bankruptcy, and only a federal bail-out kept it from going bankrupt. Five years later, it was posting record profits.

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In 1990, Chrysler was back in serious trouble, but this time, the white knight was Mr. Kerkorian, a Las Vegas investor with long ties to the casino and entertainment industries. Kerkorian snapped up nearly 10 percent of Chrysler's stock at a rock-bottom price of $12.37 a share, providing Chrysler with enough money to complete an aggressive product-development program.

Last year, with the aid of new models such as the Neon and Jeep Grand Cherokee, profits surged to new highs.

Kerkorian, however, hasn't been happy. After rocketing to more than $60 a share, Chrysler stock has slipped back below $40 in recent months, despite such moves as a big increase in the dividend announced last December in a compromise with Kerkorian. So, on Wednesday, the veteran investor launched a bold bid to make Chrysler private, offering $55 a share for the rest of the automaker's outstanding stock.

''This is one of the highest premiums ever offered in an acquisition,'' noted Alex Yemenidjian, a senior executive with Kerkorian's closely held Tracinda Corporation. ''I cannot think of a better way to enhance value for shareholders.''

The news completely surprised hundreds of automotive writers who had gathered in New York Wednesday morning to hear Chrysler chairman Robert Eaton deliver the keynote speech kicking off the New York Auto Show. Instead, Mr. Eaton rushed back to Detroit to deal with the crisis.

Kerkorian's offer apparently wasn't presented to Chrysler until Tuesday night. Tracinda had kept its plans secret to avoid a leak, Mr. Yemenidjian noted -- so secret, in fact, that the Las Vegas company has yet to line up the financing it needs for the $22.8 billion bid. But it didn't take Chrysler long to counter.

''The company is not for sale,'' it said Wednesday night.

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The question now is how Chrysler can fight the proposed takeover. The company does have a ''poison pill'' in place, a measure passed by its board of directors limiting the amount of stock any single investor can accumulate to about 15 percent of the total shares outstanding. Such measures have had mixed results at other companies trying to prevent a hostile acquisition. Kerkorian clearly did not see the obstacle as overwhelming.

Chrysler could come up with another plan designed to boost its stock price even higher, thus convincing shareholders that their best interests are not with Kerkorian. But right now, Wall Street isn't looking very favorably on domestic auto stocks, not with the American new-car market slowing down much more rapidly than forecast. And were the automaker not already ''in play'' as an acquisition target, Chrysler's weak first quarter earnings -- which declined 37 percent from a year ago -- would likely have driven its share price even lower.

Then there's the possibility that a new white knight might come along. Even Kerkorian's bid seemed to hinge on finding additional investors, possibly a foreign automaker. Chrysler has very little presence outside North America.

''I think you could put together a list'' of other automakers who would like to form ties to Chrysler, suggested auto analyst Joe Phillippi, of Lehman Brothers Inc. Among them: Volkswagen of Germany and Mitsubishi Motors of Japan, a company that has had ties to Chrysler for more than two decades.

The idea of linking up with a foreign carmaker was something former chairman Iacocca frequently proposed before his retirement two years ago.

According to Tracinda Corporation, Iacocca will play no management role if it can acquire Chrysler. But few observers believe the strong-willed, colorful executive will really want to sit on the sidelines as a passive investor. But if he were to try to play an active role, Iacocca might trigger the defection of Chrysler's strong and highly regarded management team. President Robert Lutz is widely credited with engineering the latest Chrysler comeback, and Eaton is seen as the manager who could best avert yet another boom-to-bust cycle.

Kerkorian and Iacocca ''wouldn't want to screw it up,'' warned David Cole, director of the Office for the Study of Automotive Transportation at the University of Michigan. ''They would be crazy to.''

But industry observers caution that the impending battle almost certainly will cause problems for Chrysler. It will mean millions in legal fees, and worse, it will divert management at a time when they need to be planning how to deal with the weak new-car market.

Instead, they will be fighting for Chrysler's independence.

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