Free at Last

• Share

Chrysler's federal period ends

Applause was heard all around last August when a revived Chrysler paid back the last of its $1.2 billion in Government-backed loans seven years ahead of schedule. But one bothersome problem still remained. That was the matter of the Government's right to buy 14.4 million shares of Chrysler stock, which had been given in 1980 as a sweetener for the loan guarantees. Last week Chrysler bid $311 million to buy back the stock rights and snipped even that strand. Thus, with the exception of $215 million owed to various states, Chrysler has once again become a company financed entirely by private investors.

The so-called warrants entitled the Government to buy 14.4 million shares of Chrysler at $13 per share. No one took them too seriously in 1980, because Chrysler stock was then selling for only about $5.50. But as the company's fortunes improved and the stock began rising toward $30 a share, the warrants looked more and more handsome. Should the Government ever exercise them and actually buy Chrysler stock at less than half the current price, the Treasury stood to earn millions of dollars.

But such a move would have hurt Chrysler. The company would have been forced to issue 14.4 million more shares of stock to cover the warrants. That would have diluted the value of current stock, undercutting the worth of shares held by Chrysler stockholders and making it harder for the company to raise money for future needs.

Chrysler's first attempt to deal with the warrants was clumsy. It asked the Government in May simply to give them back. Washington refused. In July, Chrysler tried a new tack. It offered about $218 million for them, but again was rebuffed by Treasury officials who felt they were worth more. Finally the Government decided to put the warrants up for bidding on the open market.

Chrysler then began playing a subtle cat-and-mouse game. Publicly, the automaker feigned a lack of interest, saying it might not even make a bid. But behind the scenes, the company was working with Investment Banker David Schulte, a Salomon Bros, vice president, on a deal. Schulte helped craft a bid by using a formula that subtracts the price of the warrants ($13) from the stock's actual price on the day of the bidding ($29.50). Using that amount ($16.50) as the base price, Schulte had to figure out how much of a premium Chrysler would have to pay to be sure to get the warrants.

In July Shearson/American Express offered about $3.60 higher than the base price, so Schulte knew he would have to go above that. Chrysler Chairman Lee Iacocca last week sent Robert S. Miller, executive vice president of finance, to New York City with a Spartan dictum. Said Miller: "He told me that if the bid was a penny too low or more than a dollar too high not to come home."