Breaking Views analyst Antony Currie has the down-low on the Kirk Kerkorian bid for Chrysler – and if you don”t have access to his ultra-exclusive website, you can get much the same analysis in the comments section of felixsalmon.com for free!
The key thing to bear in mind is Chrysler’s unfunded healthcare liabilities, which are currently hovering around the $17 billion mark. As Floyd Norris notes today (also behind a subscriber firewall, sorry), “Kirk Kerkorian is not so much offering to buy Chrysler as he is volunteering to be paid to take it on.”
It’s here where it starts to make sense for DaimlerChrysler’s Dieter Zetsche to choose a union-endorsed bid. As Currie explains,
Kerkorian has made his deal contingent on unions granting concessions. Assume a one-third cut in these worker benefits, a bit more than Ford Motor and General Motors got 18 months ago, and that takes $5.5bn off Daimler’s bill. That would still leave Daimler holding some $7bn of Chrysler’s bag. But that’s significantly less than it’s currently stuck with, so the company’s shareholders would not be damaged. Moreover, Daimler and Tracinda might even be able to cut that back more by offering the unions an equity stake in Chrysler as part of the deal.
On the other hand, it’s early days yet, and it’s all but certain that someone else will pop up with a bid to rival Kerkorian’s. Currie has one intriguing notion: how about General Motors? If a real bidding war gets under way, Chrysler might even sell for more than $0!