If you want to know the financial impact of storytelling, ask Jurgen Schrempp, the CEO of Daimler-Chrysler. He led the charge when Daimler undertook what he called “a merger of equals” with Chrysler, but later said in an interview with the Financial Times that in fact it was a takeover that was presented as a merger to make it more palatable. That simple story has already cost Daimler-Chrysler in legal fees, and may end up costing them a lot more in damages.

   The suit was prompted by a 2000 interview in The Financial Times of London, in which Mr. Schrempp said he had intended all along to relegate Chrysler to a division of the parent company and had used the term "merger of equals" only for "psychological" reasons. 

   Mr. Schrempp described himself as a chess player, keeping his next moves secret. "If I had gone out and said, 'Look, eventually Chrysler will be a division of the DaimlerChrysler Group,' everybody would have said, 'No way will we do a deal like that,' " he told the newspaper. 

   The article set off a storm of publicity and so upset the Chrysler Group's American employees that Mr. Schrempp eventually visited them and said his comments had been misunderstood.
That tiny anecdote has led to a $2 billion lawsuit by shareholder Kirk Kerkorian.  In the suit, Mr. Kerkorian has accused DaimlerChrysler Chairman Juergen Schrempp of fraud, arguing that he disguised a takeover of Chrysler by Daimler-Benz as a "merger of equals," thus depriving Chrysler shareholders of a takeover premium on their shares. Mr. Kerkorian is seeking as much as $2 billion in damages.

   One of the top stories in the Wall Street Journal on December 17, 2003 was that the trial was halted when written evidence unexpectedly emerged from a key executive’s notes that seemed to confirm Kerkorian’s case.

   U.S. District Judge Joseph Farnan unexpectedly halted proceedings in billionaire Kirk Kerkorian's civil lawsuit against DaimlerChrysler AG to give the court time to investigate handwritten notes unearthed by the auto maker's lawyers Tuesday.

   A day before the trial was set to end in Wilmington, Del., Judge Farnan sealed the 61 pages of notes and turned the matter over to the special master who oversaw the trial's discovery process. Both sides say a hearing before the special master could come Monday.

   Most of the notes come from the files of Gary Valade, the chief financial officer of the former Chrysler Corp. In court, Judge Farnan said he considered the notes to be relevant, and said they were "in some instances very substantial testimony" in the case.

   Also in court, Terry Christensen, who is leading Mr. Kerkorian's legal fight, said the notes started during meetings in February 1998 and cover merger negotiations between Daimler-Benz and Chrysler executives. 

   But Christensen told the judge, "This is a colossal issue, colossal issue." He said the notes lent support to his case.

   In 2000, Tracinda sued DaimlerChrysler, contending that the company deceived Chrysler shareholders into believing that the 1998 combination of Daimler-Benz and Chrysler was a merger of equals rather than the acquisition that Tracinda says it was. Mr. Kerkorian says he should have received a 62 percent loss-of-control premium for his 89 million shares in Chrysler, a 14 percent stake. He is seeking at least $1 billion in damages.

   Mr. Christensen used the new evidence to bolster the case. On one sheet, he pointed to a series of notations listed in bullet form, including: "loss of independence."; "American image and character."; "Senior management sold out."

   In court, Mr. Christensen said the last-minute revelation should cost the company the trial, and hinted that he might seek a default judgment against the company. As an alternative, Mr. Christensen asked Judge Farnan to keep Mr. Valade off the stand while allowing his side to use Mr. Valade's notes as evidence.

   The evidence was unveiled on the eve of Mr. Valade's testimony. One of the only two remaining former Chrysler executives on the DaimlerChrysler management board, Mr. Valade was a director of Chrysler, as well as its finance chief, while terms of the deal were being hammered out. Mr. Schrempp has called Mr. Valade a key negotiator. Mr. Christensen described him as the "the point man."

   The law firm representing DaimlerChrysler, Skadden, Arps, Slate Meagher & Flom LLP, said the new evidence came to light on Mr. Valade's plane ride to the trial from Michigan. So far, the firm's lawyers have taken full responsibility, blaming the "Skadden production machine" for the problem. A DaimlerChrysler official said the law firm is investigating what happened.

   Whatever happens in the case, Daimler-Chrysler will have spent a fortune on legal fees defending the case, which all turns on which storytelling the court believes – the story that Jurgen Schrempp told when he was launching the merger, or the story that he told the Financial Times. Either way, it’s a very expensive lesson in storytelling for Jurgen Schrempp and Daimler-Chrysler.

    From the start, though, there were signs that the combination was not exactly on an equal footing. Not only was the new company incorporated in Germany, but Daimler-Benz shareholders held 58 percent of its stock, and Chrysler shareholders were paid a premium of 28 percent above the former share value. Mr. Kerkorian's lawyers say a much higher premium would have been merited in the case of an outright acquisition. He is seeking at least $1 billion in damages. In August, DaimlerChrysler agreed to settle a class-action suit for $300 million that was filed by other disgruntled investors over similar claims about the representation of the merger.

    Of the Financial Times interview, he repeated that his comments had been misunderstood. When he said division, Mr. Schrempp explained, he meant only Chrysler's auto operations, not its top management structure. In other words, Chrysler would be a division the way Mercedes would be a division. 

   "Chrysler was not divided in a corporate part and operating part," he said. "So only as a result of the negotiation for the merger of equals did we take the corporate part of Chrysler, meaning directors, executive committee, staff functions, and merge them with the corporate part of Daimler-Benz."

   DaimlerChrysler's lawyers have suggested that Mr. Kerkorian's claim borders on the absurd. They said that the terms of the deal had been spelled out clearly in writing in an agreement disclosed to shareholders and that Mr. Kerkorian had an insider's view of the transaction through his representative on Chrysler's board. 

   Like Mr. Kerkorian, several former Chrysler executives testified that they, too, were either hurt or puzzled by Mr. Schrempp's interview. One was Mr. Eaton, the former Chrysler chairman who had split the chairmanship of DaimlerChrysler's management board for two years with Mr. Schrempp. 
Yet the Chrysler executives, Mr. Eaton included, also said that they stood by the deal. "I believe it was a merger of equals," Thomas T. Stallkamp, the former president of the Chrysler Group, said at the trial. He was forced out of Chrysler the year after the merger. 

   But was it a merger of equals? At the trial, Mr. Schrempp called that description "absolutely correct."

   "And by telling the truth," he added, "I don't think I can defraud anyone."

   Further, he argued, the terms of the contract laid out a division of management for a set period of a few years, and that condition was met; beyond that, he said, no company can permanently cede the right to make management changes. 

    Mr. Schrempp said he saw the deal as a chance to survive in an industry that had shrunk from 50 to 60 automakers in the 1960's to 16 or 17 in 1998 and now to 10 or less, depending on how interlocking companies are counted. "We were continually studying what will happen in the international automotive industry, who are the companies that will survive this consolidation process," he said. "What do you have to do to be part of those companies to survive?" 

   The crucial factors were being large enough to have competitive economies of scale, to compete in the world's major markets - Europe, the United States and Asia - and to maintain a high level of technology, be it engineering or gadgetry. The third factor was costly, but especially important to maintaining a luxury brand like Mercedes. 

   "We were very good, obviously, in technology," said Mr. Schrempp. "We had and still have in this field very good margins, good cars. Luxury cars I am talking about. But we had the volume of 800,000, 900,000 cars.'' By contrast, General Motors, the world's largest automaker, sold more than 8.6 million cars and trucks last year.

   As for competitors, Mr. Schrempp said: "We were on the forefront of technology, which means we had the highest cost to finance that technology. And we were actually concerned whether we can sustain that, because others have seen our success, others were coming. Honda, Toyota, BMW were in there already. Audi was coming. So we couldn't sit there and say let's enjoy these high margins on a low-volume basis. We could not sustain that."

  Whatever the outcome of the trial, the cost to Daimler-Chrysler of the single story told by Schrempp to the Financial Times will be massive.

For more examples of Storytelling in The News, go to the Archive