Schrempp Says We Would Have Been Based in US But For Taxes

WILMINGTON, Del. February 9,2004; Jon Hurdle writing for Reuters reported that DaimlerChrysler Chief Executive Juergen Schrempp said on Monday he would have been happy to have the company formed by the 1998 link-up between Germany's Daimler-Benz and America's Chrysler Corp. based in the United States.

"I would have loved to have a company incorporated in the U.S.," said Schrempp, as he testified for the second time in a lawsuit over the merger that formed the world's fifth-largest automaker.

"If it would have been tax advantageous for both sides, I think it would have happened."

Schrempp, mastermind of what he has long defended as a "merger of equals," is being sued in federal court here by Las Vegas casino billionaire and investor Kirk Kerkorian, who claims the 1998 deal was actually a takeover of Chrysler by the German automaker.

Kerkorian's suit was sparked by comments Schrempp made to The Financial Times in October 2000, when he said he always meant to make Chrysler a "division" of Stuttgart-based DaimlerChrysler.

The trial was halted by U.S. District Court Judge Joseph Farnan in mid-December after DaimlerChrysler's attorneys said they had discovered a set of notes about the merger taken by Gary Valade, Chrysler's former chief financial officer, that were never shared with Kerkorian's lawyers.

Schrempp's remarks, as the trial reopened on Monday, were prompted by questions from a lawyer for Kerkorian's Tracinda Corp. investment firm, who claimed it was decided from the outset that DaimlerChrysler would be based in Germany.

Schrempp insisted the possibility of giving DaimlerChrysler a U.S. home was looked at several times, but later rejected for tax reasons.

The German auto boss also said he was "a bit puzzled" when asked about a line in one of Valade's notes referring to the proposed merger as "structurally 'almost' a takeover."

The quote was attributed to comments made by Robert Eaton, Chrysler's chairman at the time of the 1998 deal.

"I do not recall anyone saying that," Schrempp said.

THE HARD SELL

Valade's notes, shown in detail to the court for the first time, indicate the U.S. side was concerned about its ability to present the transaction to shareholders as a merger of equals, however.

"We have come to realize that, internally, it would be very difficult to become a German company and sell this as a merger of equals," Valade's notes said.

Schrempp was followed on the stand by former Chrysler President Thomas Stallkamp, who was asked to explain notes, handwritten by Valade on Stallkamp's own stationery, that included the phrases "loss of independence" and "sell out for project."

Stallkamp said the potentially embarrassing notes reflected efforts to come up with a communications strategy, as he and other executives sought to anticipate possible objections to the merger from U.S. shareholders or Chrysler workers.

"This reflects the point of view that could be expressed by other people not knowing the intent of the deal," Stallkamp said.

Kerkorian, who was Chrysler's largest shareholder in 1998, claims Schrempp and other executives pitched the deal as a merger rather than a takeover to lower the transaction price and avoid paying stockholders a "control premium" for their shares. He is seeking more than $1 billion in damages.