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DC Pays $300 million over \"Merger\"/\"Takeover\"

Daimler Pays but Insists It Merged
Suit Alleged Chrysler Deal Was a Takeover

By Steven Gray
Washington Post Staff Writer
Saturday, August 23, 2003; Page E01

DaimlerChrysler AG, the world's fifth-largest automaker, said yesterday that it agreed to pay $300 million to settle an investor class-action lawsuit that alleged Daimler-Benz AG misrepresented the takeover of the American company as a "merger of equals."

The lawsuit, which sought $12 billion, alleged that Daimler-Benz in 1998 presented the $36 billion takeover as a merger, and did not make clear Chrysler would in effect be a subsidiary of the Stuttgart, Germany-based company.

"It was a misrepresentation in connection with the merger," said Jay W. Eisenhofer, a partner in the Wilmington, Del., firm of Grant & Eisenhofer P.A., who was the lead plaintiff's attorney. "As a result, they should have paid additional money to investors at the time of the merger."

Typically, larger premiums are paid to investors for acquisitions than for "mergers of equals," Eisenhofer said. The premiums are meant to compensate shareholders for loss of control in the company.

J. Michael Schell, a partner at Skadden, Slate, Meagher and Flom LLP in New York, which represented DaimlerChrysler AG, rejected the claim that the deal did not meet the criterion for a merger of equals.

Schell added that the company "remains convinced that this case lacked legal merit. The notion that this was not a merger of equals is just far-fetched, and the notion that it was not . . . in conformity with what the company said in its merger agreement and in its proxy statement is even more far-fetched."

The lead plaintiffs in the case were the Florida State Board of Administration, the Denver Employees' Retirement Plan, the Policeman's Annuity and Benefit Fund of Chicago, and the Municipal Employees and Annuity Benefit Fund of Chicago.

The settlement amounted to 40 cents to 50 cents a share, depending on the number of shareholders included in the class-action lawsuit. DaimlerChrysler's insurance will cover $220 million of the $300 million cost.

DaimlerChrysler's shares fell 54 cents yesterday to close at $37.46 on the New York Stock Exchange.

DaimlerChrysler also faces a lawsuit from Kirk Kerkorian, the billionaire investor who alleges that senior company officials assured him the deal was a "merger of equals" in an effort to persuade him to vote his 80 million shares in the company's stock in favor of the deal.

Yesterday, Terry Christensen, a Los Angeles attorney representing Kerkorian's Tracinda Corp., a holding company, said he was "encouraged" by the settlement because "those claims followed our claims." At one point, Kerkorian owned 13.75 percent of Chrysler's shares. He controls the Metro-Goldwyn-Mayer Inc. movie studio and the MGM Mirage casino.

Kerkorian's suit is scheduled for trial in Federal Court in Wilmington, Del., in December. Christensen said he has not had discussions with DaimlerChrysler about a possible settlement and at this point, "we're prepared to go to trial."

But securities law experts said such cases rarely reach the courtroom. "This is a post-Enron era, and no defendant feels comfortable going to trial, or even bargaining at the courthouse steps," said John T. Coffee Jr. , professor of securities law and director of the Center for Corporate Governance at Columbia University Law School.
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