Was the 1998 deal between Daimler Benz and Chrysler Corp. a merger of equals or an acquisition by the German auto giant?
With one day to go in the two-week trial to determine the answer to that $1 billion question, DaimlerChrysler dropped a bombshell earlier this week when it handed the judge 61 pages of notes from Chrysler’s former CFO, Gary Valade, who had been slated to testify, according to published reports.
The notes appear to bolster the arguments of billionaire investor Kirk Kerkorian, who sued DaimlerChrysler because he felt he was short-changed when the deal was completed.
As a result of the surprise submission of Valade’s notes, Federal District Court Judge Joseph Farnan Jr. abruptly suspended the trial and ordered a separate hearing for next Monday to determine why the German company’s lawyers did not turn over Valade’s notes sooner.
Valade’s notes cover a period early in the negotiations between the companies and seem to reflect the thinking of Chrysler’s executives as the deal was unfolding, according to Dow Jones. The notes run from the first meeting between Chrysler chief executive Robert Eaton and Daimler-Benz chief executive Juergen Schrempp in early 1998 through the end of April that year, just before the agreement was made public, the wire service added.
The judge singled out a notation that says ” ‘almost’ a takeover” on a document that carried the initials “RJE,” according to Dow Jones. “I would like to know if that [the reference to a takeover] was his [Valade’s] thinking or Eaton’s thinking,” Judge Farnan said.
The lawsuit claims the combination of Daimler-Benz and Chrysler was a takeover, not a merger of equals, and a deal that allowed the new owners to remove Chrysler management within a few years.
Valade was a key player in the negotiations, a member of the board as well the finance chief. Currently one of two former Chrysler executives on the DaimlerChrysler board of management, he is scheduled to retire at the end of the year as head of international purchasing for DaimlerChrysler. He reportedly was expected to testify in defense of the company.
The judge stressed that he didn’t think that there was “anything untoward” in the conduct of Skadden, Arps, Slate, Meagher & Flom, the law firm representing DaimlerChrysler, according to The New York Times. Skadden’s Thomas Allingham reportedly said that the firm’s late presentation of Valade’s notes “is the result of an honest and good-faith mistake, which we corrected immediately.”
But Terry Christensen, the lead lawyer for Kerkorian’s company, Tracinda Corp., reportedly told the judge, “This is a colossal issue, colossal issue.” Tracinda sued DaimlerChrysler in 2000, charging that the automaker deceived Chrysler shareholders into believing that the 1998 combination of Daimler-Benz and Chrysler was a merger of equals rather than the acquisition that Tracinda says it was, the Times reported.
Kerkorian reportedly claims that he should have gotten a 62 percent loss-of-control premium for his 89 million shares in Chrysler, which amounted to a near-14 percent stake in the company. The 86-year-old corporate raider is seeking at least $1 billion in damages.
Supreme Court Takes Swipe at Tax Loophole
The U.S. Supreme Court handed the state of Maryland an early holiday gift by refusing to hear an appeal aimed at upholding a corporate tax-shelter loophole, reports the Associated Press.
On Monday, the high court turned down an appeal request from Philadelphia-based Crown Cork & Seal, a manufacturer that uses a Delaware holding company to shelter income earned in Maryland from state taxes.
According to an article in CFO magazine’s upcoming January issue, the Maryland Court of Appeals had ruled that Crown’s Delaware holding company could be taxed because it “had no real economic substance” as a separate business entity. Armed with the news that the Supreme Court would let the lower court’s decision stand, Maryland state officials say they will seek to collect at least $78 million in back taxes, interest and penalties from 72 corporations who apparently capitalized on the tax shelter, according to AP.
Crown reportedly owes $1.4 million to Maryland. Toys “R” Us, Victoria’s Secret, Abercombie & Fitch, The Limited, and May Department Stores, are also on the hit list of companies that the Maryland state controller will dog for back taxes.
This is the second time this year that the Supreme Court turned down an appeal involving the Delaware tax shelter. In November, the court turned its back on an appeal filed by New Jersey-based Syms Corp., upholding another Maryland Court of Appeals judgment. The “so-called offices in Delaware were little more than mail drops,” said Court of Appeals Judge John C. Eldridge in his opinion.
The CFO article points out that last year, state officials stepped up their efforts to undermine corporate tax-planning techniques that abused the Delaware law. In most cases, however, the states were defeated in court, and therefore, began turning to lawmakers to tighten the loophole.
To be sure, court victories against Crown and Syms bode well for states that want to fight the tax schemes in court. In what might be a more significant development, however, a growing number of legislatures are mulling bills that would clamp down on Delaware holding companies that use shelters to avoid paying taxes in their states.
SEC Approves NYSE Governance Plan
The Securities and Exchange Commission (SEC) approved the New York Stock Exchange’s (NYSE) plan to change the Big Board’s governance structure, including a provision to separate the jobs of the chairman and chief executive.
The NYSE board of directors will be reduced from between 24 and 27 members, to between six and 12 members—plus the chairman and CEO. Board members, except the CEO, will be required to be independent of management, the members, and issuers.
A board of executives will also be created as an advisory group, comprising the chairman, CEO, and at least 20—but no more than 25—members who will serve for one-year terms. The members of the executive board will include representatives of the exchange’s various stakeholders, including member firms, institutional investors, and listed companies.
“In this way, the NYSE should be in a better position to protect against the concentration of too much executive authority in one individual,” said SEC Chairman William Donaldson before the commission voted, according to wire service reports.
Splitting the chairman and CEO jobs was not part of the formal reform plan, but Donaldson said the NYSE board supported the idea. “In theory, [the plan to split the chairman and CEO roles] could be changed,” Donaldson told the wire services. However, the SEC chief believes the idea to implement a split was a unanimous board decision.
The reform plan also calls for the creation of a chief regulatory officer. The board will appoint the CRO, who will report directly to the exchange’s Regulatory Oversight & Regulatory Budget Committee. That independent board committee will exercise control over the NYSE’s regulatory plan, budget, and staffing, and recommend the compensation of senior regulatory employees.
- Nokia Group will set up a new corporate office in the New York City metropolitan area to serve as the base for Nokia’s CFO, Rick Simonson. The office will also serve the Finnish company’s newly created enterprise solutions business group and Mary McDowell—who heads up that unit—as well as parts of different corporate functions and some regional operations. “This will enable us to have even closer links with investors and the financial community,” notes Jorma Ollila, chairman and CEO of Nokia. The Nokia U.S. country management team will continue to be located in Irving, Texas.
- Orbitz raised an unexpected $316.7 million in its much-anticipated initial public offering. Executives at the on-line travel company said they priced the IPO at $26 per share, above the estimated price range of $22 to $24. Orbitz also boosted the number of shares being offered from 11 million to 12.18 million. Of the shares being offered, the company is selling 4 million, while certain stockholders are selling 8.18 million. The stock’s share price closed down nearly 4 percent after rising nearly $5 during the trading session.
- Officials at UAL, the parent of United Airlines, said they obtained $2 billion in exit financing, as the company moves closer to emerging from bankruptcy protection. UAL executives said J.P. Morgan Chase & Co. and Citigroup will each underwrite $200 million of the non-guaranteed portion of the loan and $800 million of the guaranteed portion.
- Motorola executives are planning a $2 billion spin-off of the company’s struggling semiconductor unit. The regulatory filing comes one day after the world’s second largest cell-phone maker named former Sun Microsystems president, Edward Sander, as its chairman and chief executive.