Schrempp Defends Chrysler Deal as Merger

Schrempp took the stand in a Wilmington, Delaware, court in a lawsuit brought by billionaire investor Kirk Kerkorian, who was Chrysler's largest shareholder before the 1998 merger of the U.S.'s third-largest car manufacturer, Chrysler, with Germany's Daimler-Benz.

Kerkorian (photo) claims that Daimler-Benz presented the $36 billion deal as a merger of equals, when really it was a secret take over bid. He is suing DaimlerChrysler for as much as $3 billion in damages for stock losses.

Kerkorian says shareholders have been denied premiums that they would have been owed in the event of an acquisition. Schrempp maintained that there was never any attempt to deceive investors about the merger.

"The description of a merger of equals is absolutely correct," Schrempp said. "And by telling the truth, I don't think I can defraud anyone."

Chrysler's troubles

Schrempp, whose testimony lasted over four hours, said that he personally was against any kind of "unfriendly actions," including hostile take overs. During the questioning, which was handled by his own lawyers, Schrempp traced the history of the merger in minute detail. He said it was only in the second half of 2000 that problems with Chrysler's management began to emerge -- problems that had nothing to do with the merger.

Another top DaimlerChrysler official, Hilmar Kopper, said in a taped deposition that it only then became clear that Chrysler lacked competent management, meaning that the company had no choice but to fill executive positions with German executives instead of Americans.

"We had all sorts of second thoughts about sending Germans over; we took it for granted that Chrysler could always be run by Americans, only to find that this did not come true," Kopper said.

In 2000, two former Mercedes executives, Dieter Zetsche and Wolfgang Bernhard, were sent to take over the struggling Chrysler group. At the time of the merger, eight Chrysler officials and 10 Daimler-Benz officials sat on the management board. Schrempp and the former Chrysler chief executive, Robert J. Eaton initially shared the chairmanship. Eaton has since retired, and as of January 2004, the board will be comprised of 10 Germans and one former Chrysler official.

According to Kerkorian's lead lawyer Terry Christensen, the lack of American influence over the company proves Kerkorian's claim that Daimler-Benz has effectively acquired Chrysler.

Incriminating interview

Kerkorian launched the suit following an interview Schrempp gave to the Financial Times in October 2000, in which he suggested that he always intended for Chrysler to be a division of the combined company, and that labeling the deal a merger of equals with equal representation of Americans and Germans on the board was done "for psychological reasons."

When asked about the interview in court, Schrempp said: "We were in an extremely difficult situation, we were hammered by the media for the performance of the company, particularly Chrysler, and there was talk all around that the merger hadn't worked."

Schrempp will be cross-examined on Wednesday.