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Legal victory a rare bit of good news for DaimlerChrysler

It's been a tough time for German-US auto giant DaimlerChrysler recently, with a seemingly never-ending series of quality problems at its prestigious Mercedes unit, losses at its Smart mini-car division and shareholder anger at the low-performing share price.

But the car maker and its controversial chief executive Juergen Schrempp were finally vindicated this week when a US court threw out a billion-dollar lawsuit by US billionaire investor Kirk Kerkorian, who had challenged the 1998 mega-merger between Daimler-Benz and Chrysler.

Compensation claim

Kerkorian and his investment vehicle, Tracinda Corporation, had argued that, in the biggest tie-up in automotive history, the German giant had deliberately misled Chrysler shareholders by claiming the deal was a "merger of equals" rather than a straightforward takeover. In doing so, Daimler-Benz had avoided paying a hefty premium to Chrysler shareholders, the casino magnate argued.

Kerkorian therefore filed a suit in 2000 demanding US$1.2 billion in compensation.

But in a ruling on Thursday, a federal court in Wilmington, Delaware threw out Kerkorian's claims, finding in DaimlerChrysler's favor instead.

The news, coming after a long run of bad news for DaimlerChrysler and a particularly stormy annual shareholder meeting in Berlin on Wednesday, therefore came as a welcome respite for the car maker and its chairman, once described as a "Rambo of the nation" for his hard-hitting management style.

"We are pleased that the court's decision confirms, once and for all, that the Tracinda case lacked any merit and that all claims against DaimlerChrysler relating to the 1998 merger were completely baseless," Schrempp said in a short statement.

Schrempp had come under heavy fire from shareholders at the annual meeting following the series of embarrassing quality problems plaguing DaimlerChrysler's flagship Mercedes-Benz brand, seemingly never-ending losses at the group's trendy Smart car and the weak performance of the group's share price.

Capping the group's problems was the announcement last week that DaimlerChrysler was forced to recall 1.3 million Mercedes cars worldwide last week in what was the biggest recall in the brand's history.

Some shareholders had even threatened to withhold their approval of management's actions during the last business year in what would effectively be a vote of no confidence for Schrempp and his executive board.

Tarnished

In the end, that motion was voted down. But Schrempp's image was nevertheless tarnished and his ambitions to turn DaimlerChrysler into a "World Inc" were left in tatters in the wake of the angry meeting.

Schrempp said that the US court ruling vindicated his global ambitions for the group.

"We will continue to concentrate our efforts on making this merger a great success by implementing our strategy and optimizing our operations in the US, in Germany and around the globe," he said.

US judge Joseph Farnan ruled that Kerkorian and Tracinda had failed to substantiate their claims against the 1998 mega-merger.
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