Chrysler to Pay $757 Million for Ailing American Motors : Renault OKs Sale of 46.1% Share

DETROIT —  Cash-rich Chrysler Corp., the nation’s third largest auto maker, today announced an agreement to buy Renault’s interest in ailing American Motors Corp. and all outstanding AMC stock for $757 million.

Chrysler and the French auto maker have signed a letter of intent, the two companies said today.

Under the plan, Chrysler would buy all outstanding shares of AMC, the fifth-largest U.S. auto maker. Chrysler has been searching for an acquisition for some time.

“This is an agreement in principle. Much work remains to be done before the deal is complete,” Chrysler Chairman Lee Iacocca said.

AMC Studying Proposal

AMC President Joseph Cappy said AMC received a letter today detailing the purchase proposal. “We are studying the proposal,” he said, adding that AMC will have no further comment until later.

French-government-owned Renault holds a 46.1% interest in AMC, which in the fourth quarter of 1986 earned its first profit in two years. In the last six years, AMC has lost a total of $838.6 million.

Chrysler reported $22.59 billion in sales in 1986, while AMC’s sales totaled $3.46 billion. Together, the companies’ sales last year would have totaled $26.05 billion, far short of second-ranked Ford Motor Co.’s $62.72 billion. General Motors Corp. is the largest U.S. auto maker.

Chrysler’s net earnings for 1986 were $1.4 billion, while AMC lost $91.3 million last year.

Government OK Needed

The plan will require approval by the U.S. and French governments, the boards of directors of Chrysler, AMC and Renault and of AMC shareholders. If approved, holders of AMC common stock other than Renault would receive $4 worth of Chrysler common stock for each share of AMC stock they hold.

Under the $757-million deal, Chrysler would trade $522 million in Chrysler stock for AMC’s outstanding shares, give Renault a $200-million, 10-year, 8% note for its AMC interest and pay Renault $35 million in cash, said Chrysler Vice President James Tolly.

Chrysler also agreed to a payment ranging from zero to $350 million to Renault based on AMC future profits and sales.

Advantages Outlined

“For Chrysler, the attractions are Jeep, the best-known automotive brand name in the world; a new, world-class assembly plant at Bramalea, Canada, and a third distribution system giving us access to a larger market,” Iacocca said.

“For AMC, an integration with, and access to, a broader product line. For Renault, continuing presence and distribution capabilities in the United States and Canada,” he added.

The proposal met with approval from the United Auto Workers union, which represents 10,000 AMC workers and 86,000 Chrysler workers. The union hailed it as “a good match that potentially points the way to a more secure future for workers at both companies.”

Under the plan, AMC initially would remain a distinct Chrysler subsidiary and the AMC-Jeep-Renault dealer organization would remain independent. Chrysler eventually would absorb AMC’s product development and manufacturing operations, Iacocca said.