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Are they only in it for the money? That’s the question asked of plaintiffs’ lawyers who, following the lead of investor Kirk Kerkorian, have brought suit challenging the merger of Chrysler with Daimler-Benz. The suits, which seek billions in damages, charge that the deal was fraudulently described as a merger of equals in the agreement, proxy materials and public statements, when Chrysler, in reality, was destined to become a division of the German automaker. The plaintiffs’ lawyers deny that they’re just in it for the money and insist that the injunctive relief that they also seek — the unwinding of the 1998 deal — may be unlikely but is not an impossible outcome. “My client is in this to vindicate his legal rights, whatever it takes,” says William G. McGuinness, a partner in the New York office of Fried, Frank, Harris, Shriver & Jacobson, who is one of the lawyers representing Kerkorian’s company, Tracinda Corp., the named plaintiff in the first suit filed against Daimler. Tracinda was Chrysler’s largest shareholder before the merger. But mergers and acquisitions lawyers scoff at the suits and doubt that any court will find that Chrysler shareholders and directors were duped, let alone attempt to sever the U.S. automaker two years after the deal closed. SERIOUS STUFF And while DaimlerChrysler A.G. initially downplayed the suits, the company appears to be taking them more seriously as the number of cases begins to mount. The plaintiffs’ case rests mostly on the premise that Juergon Schrempp, Daimler’s chief executive officer, intended from the inception to make Chrysler a division. The plaintiffs claim that if they had known that Daimler planned a takeover, they would have sought a bigger change-of-control premium before agreeing to the deal. Additionally, the plaintiffs base their case on the post-merger replacement of American executives with German nationals, as well as on statements made by Schrempp. In October, he reportedly told the Financial Times how he always wanted to relegate the Detroit automaker to mere “division” status and repeated the statement in a Nov. 4 article in Barron’s. The remarks indicate Schrempp’s ignorance of both U.S. law and corporate culture, says Jeffrey G. Smith, who has sued on behalf of a class of one-time Chrysler shareholders, including Philadelphia lawyer Stanley Kops. “Mr. Schrempp may never have realized that Americans” would take offense while watching their DaimlerChrysler stock values nosedive in recent months, Smith says. And, says Sam Sporn, a name partner in New York’s Schoengold & Sporn who recently filed a derivative lawsuit against Daimler, the “failure to fully disclose material facts” can trigger liability under the U.S. securities laws. The suits, which all allege securities violations as well as common-law fraud, have been filed in Delaware federal court, where Chrysler was incorporated. Schrempp, through a spokesman in Stuttgart, Germany, where Daimler is based, originally declined to comment on the litigation — or to explain his post-merger remarks. His statement merely contended that the lawsuits are “without merit.” But after New York’s Milberg Weiss Bershad Hynes & Lerach filed a similar complaint, as did Ira Press of New York’s Kirby McInerney & Squire, and several other firms, Daimler hired investment banker J.P. Morgan to help steer the company’s legal defense. The company has still not publicly named its defense counsel in the litigation. CAR BUSINESS SLUMP On Dec. 7, Schrempp issued a statement suggesting that any changes he made have been necessary to “address today’s business conditions,” alluding to the auto industry’s recent slump. He also emphasized that the framework of the legal and governance structure originally described in the combined firm’s merger agreement “remains the same.” As the plaintiffs’ lawyers tell it, Schrempp has much to fear in a courtroom showdown on the issue of damages alone. Tracinda, for example, is seeking more than $2 billion to cover the control premium that allegedly would have been paid to Chrysler stockholders had the deal been portrayed as a takeover, according to a statement from Terry Christensen, a name partner at Los Angeles’ Christensen, Miller, Fink, Jacobs, Glasser, Weil and Shapiro and the lead lawyer representing Kerkorian and Tracinda. Tracinda also seeks more than $1 billion in “rescissory damages,” including the alleged drop in value of the DaimlerChrysler shares exchanged for Tracinda’s Chrysler stock, and “at least” another $6 billion in punitive damages according to Christensen’s statement. Several experts think that Schrempp’s post-merger statements made to the press are insufficient to sustain these lawsuits. “It will be a real tall order — to pick out particular statements that may have been made by Mr. Schrempp to a reporter, but not in a proxy or prospectus, and say, ‘This shows the whole thing was a fraud,’ ” says Michael Hanrahan, a partner in Wilmington, Del.’s Prickett Jones & Elliott. Nor is Hanrahan sanguine about the plaintiffs’ chances of getting a court to fashion a “practical” remedy, even if the evidence of fraud turns out to be convincing. “Rescission just doesn’t happen in major mergers,” he maintains, because no court has been able to figure out how to put the scrambled eggs back together. Other M&A experts point out that the DaimlerChrysler combination can be read as a hybrid that is essentially half merger and half takeover. That’s because the merger agreement called for an equal division of power for only three years, including a sharing of the chairmanship position. However, Robert Eaton, Chrysler’s former CEO who became co-chairman, stepped aside in March, leaving Schrempp alone at the top. The company was reincorporated in Germany under the deal’s terms. Additionally, the deal did not clearly guarantee that Americans would control Chrysler’s Detroit headquarters at the operational level, as some M&A experts say they might have expected in a true “merger of equals” scenario. Two of the plaintiffs’ lawyers, Smith and Sporn, say that under U.S. securities laws and state law, shareholders have a right to be fully informed about the essential details of proposed mergers so they can either direct their board of directors to “cut a better deal” or “bail out” before they are consummated. Smith argued that the case law is especially on his side on at least one important point. He points to a line of Delaware cases holding that directors of a takeover target owe a fiduciary duty to maximize their shareholders’ stock “value” via a “control premium.” Still, securities law expert Robert E. Gooding Jr., a partner in the Irvine, Calif., office of Howrey Simon Arnold & White, observed that the plaintiffs face an uphill battle in persuading a court to order a rescission or even damages at this late date.

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