The Chrysler Bidding War Begins

In retrospect, it was bound to happen. In fact, I'm kicking myself for not seeing this sooner.

When rumors began late last year that Teutonic-American auto magnate DaimlerChrysler (NYSE: DCX  ) was looking to offload its money-losing U.S. half, I wasn't surprised to hear that Canada's Magna (NYSE: MGA  ) was looking to bid. Given the spate of goings-private in recent years, I was even less surprised to hear names like Cerberus Capital Management, Blackstone Group, and Centerbridge Partners voiced as potential buyers.

But how did I miss that, having pulled his money out of GM (NYSE: GM  ) when it refused to hook up with Nissan (Nasdaq: NSANY  ) , and having apparently decided not to shift his interest to Ford (NYSE: F  ) , legendary corporate raider and former Chrysler investor Kirk Kerkorian might ask his old dance partner for a second waltz?

That's exactly what seems to be happening today. In news less than one hour old, it's just been revealed that Kerkorian and his Tracinda investment vehicle have made DaimlerChrysler an offer it can almost certainly refuse.

Can?
Can. Because the real story here is the price that Kerkorian is offering for his old flame. As I described last month in "Canada? Oh, Canada!," a story on hometown hero Magna's bid for DaimlerChrysler, Canada's The Globe and Mail quoted industry analysts saying that the bidding would likely start at $5 billion or more. Crunching some quick numbers, I responded: "Last year, the Chrysler division had $62 billion in sales. At the going rate for similarly unprofitable U.S. auto majors -- less than 0.1 times sales -- that suggests a sales price of about $6 billion."

So how much is Kerkorian offering? $5 billion? $6 billion? Perhaps seven? Nuh-uh. A measly $4.5 billion is all the famed buyout artiste will ante up for Chrysler. What's more, Kerkorian's offer comes with strings attached: He'll pay that princely sum only if the United Auto Workers union agrees to a new collective bargaining agreement, and if Daimler promises to pay a fair share of any unfunded pension and health-care liabilities for Chrysler's retirees.

Foolish takeaway
I've got two questions about all this. If the one investor who arguably knows Chrysler best thinks it's worth only $0.75 on the dollar of the going rate for U.S. automakers, what does that say about the price Daimler should expect to receive? Perhaps more importantly, what does it say about the stock prices currently accorded to Ford and GM?

Read all about Kerkorian's last corporate auto raid in:

Fool contributor Rich Smith does not own shares of any company named above. The Fool has a disclosure policy.


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