California billionaire Kirk Kerkorian has bought 9.8 percent of the stock of Chrysler Corp. for about $272 million, making him the company's largest shareholder and prompting the struggling automaker to beef up its takeover defenses.
Chrysler said Kerkorian met last week with Chrysler Chairman Lee Iacocca and said he intended to be a passive investor.
Taking no chances, Chrysler's board of directors on Friday lowered from 20 percent to 10 percent the amount of stock an investor may hold before the company's anti-takeover mechanisms take effect.
Those mechanisms include offering current Chrysler stockholders shares at less-than-market value. That makes a hostile takeover more difficult and expensive.
A spokesman for Kerkorian said that he had bought the Chrysler shares as an investment and was disappointed by the company's response.
"It is hard for us to see how the steps taken by the board Friday are in the best interests of all the shareholders," said a spokesman for Tracinda Corp., Kerkorian's investment vehicle.
"The shares were acquired, in part, as a result of the high regard held by Tracinda and its sole shareholder, Kirk Kerkorian, for Lee Iacocca," he said.
Chrysler said its "poison pill" move simply strengthened the board's hand and was in shareholders' best interest.
Trading in Chrysler's stock was halted for about an hour on the New York Stock Exchange so the market could digest the news. After the announcement, the stock, which had been down 37.5 cents, rose to close at $12.25, unchanged from Thursday.
Although analysts discounted the possibility of a takeover bid -- the company is worth about $2.7 billion at current market prices -- they did not rule it out. But they wondered why Kerkorian chose Chrysler.
"This is an absolutely confounding development," said Wertheim Schroder and Co. analyst John Casesa. "Why would he want to control a company like Chrysler -- a weak player in a highly cyclical, mature business being overrun by the Japanese?"
Analysts also wonder what a businessman whose principal experience lies in the entertainment industry could see in the auto business.
Kerkorian, 73, is known as a high-rolling airline and Las Vegas casino investor. On Nov. 1 he completed the sale of MGM-UA Communications Co. for $1.3 billion to Pathe Communications Corp.
Bear Stearns analyst Douglas Laughlin said the investment seemed to be typical of Kerkorian. Chrysler is "obviously experiencing a cyclical downturn," he said. "He might just be trying to buy low and sell high."
"A lot of people have been saying that the stock has been getting so cheap that at some point (Chrysler) has to be worried about a takeover bid," said Mike Luckey of the Luckey Consulting Group.
Chrysler -- with 225.1 million shares outstanding -- has been conducting a stock repurchase program for more than a year to try and cut the number to 200 million.
Like the other domestic automakers, Chrysler has been hurt this year by sagging sales in a flagging economy. It took a $214 million loss in the third quarter on $6.5 billion in revenue, compared to $331 million in earnings on $7.6 billion in revenue in the 1989 period.