Kerkorian's stake in GM is nearly doubled

Corporate raider now owns 7.2%, fueling speculation of takeover bid

His company has called it `passive' investment

Purchase of shares puts pressure on automaker to revive its fortunes

June 09, 2005|By James F. Peltz | James F. Peltz,LOS ANGELES TIMES

Los Angeles billionaire Kirk Kerkorian nearly doubled his ownership in General Motors Corp. yesterday, heightening speculation on Wall Street about his next move with one of the nation's most storied companies.

Kerkorian bought the additional GM stock - giving him 7.2 percent of the company and making him the third-largest shareholder - a day after the automaker unveiled a broad restructuring aimed at lifting GM from its deep U.S. sales slump and reversing a $1.1 billion first-quarter loss.

The growing involvement of the 88-year-old Kerkorian, a legendary investor who shook up Chrysler Corp. with a failed takeover bid a decade ago, is seen as giving GM even more impetus to quickly find ways of braking its decline.

"With Kerkorian breathing down your neck, you may be spurred to do something faster than you had planned," said James Hossack, an analyst at AutoPacific Inc., an automotive consulting company in Tustin, Calif.

The big question now is whether Kerkorian is content to allow GM and its chief executive, Rick Wagoner, to sort out the company's problems.

Other analysts suggest that Kerkorian will quietly put pressure on GM to further overhaul its business.

He has followed that script before. In the early 1990s, for instance, Kerkorian amassed a 10 percent stake in Chrysler without indicating whether he wanted to own the company.

Then, in 1995, he stunned the automotive world by launching a $20 billion hostile takeover bid in partnership with former Chrysler Chairman Lee Iacocca. He also put a representative on Chrysler's board of directors and continued to push for changes.

His takeover bid failed when he and Iacocca couldn't line up enough financing, a setback that briefly tarnished Kerkorian's reputation as a knowledgeable investor. But three years later, Chrysler merged with Daimler-Benz to create what is today DaimlerChrysler AG, and Kerkorian reaped a multibillion-dollar profit from his Chrysler holdings.

Kerkorian's increased holding of GM shares has prompted a variety of theories about his motives. Some speculate that he has made an astute investment, buying shares of a battered yet venerable company at its trough.

Long regarded as a shrewd, independent-minded investor, Kerkorian started buying GM's stock this spring, shortly after the automaker's stock plunged to a 12-year low because of its sinking vehicle sales and higher operating costs.

He bought his initial 22 million shares of GM at an average cost of $26.33 a share, or $579 million, and did so quietly because investors don't have to disclose their holdings until they acquire 5 percent of a company. Based on yesterday's closing price, Kerkorian has made a profit of $5.69 a share, or $125 million, on that initial stock.

There also have been suggestions that GM might spin off part of its profitable financial-services division, General Motors Acceptance Corp., as a way to provide shareholders with more value for their stock. Wagoner said Tuesday that GM is evaluating GMAC.

"Selling the [GMAC] mortgage and insurance businesses alone would probably yield $10 billion in proceeds," analyst Himanshu Patel of J.P. Morgan Securities Inc. said in a note to clients yesterday.

Whether Kerkorian and other shareholders would see any of that cash is another matter.

GM is grappling with $250 billion in long-term debt, rising health care costs and $87 billion in pension liabilities. Some analysts have said that because the automaker and the financial-services business are so interrelated, separating them carries risks.

Kerkorian's investment company, Tracinda Corp., has said that its interest in GM is "passive," meaning it has no immediate plans to wage a proxy fight to oust GM's board of directors or attempt a takeover of the company.

But Kerkorian isn't one to telegraph his strategy. He dropped a bombshell last month when Tracinda said it owned 4 percent of GM and offered to buy an additional 28 million shares from investors for $31 a share.

His tender offer ended Tuesday, and Tracinda said 19 million shares were sold to it for nearly $590 million.

That Tracinda did not receive the full 28 million shares was a sign to Wall Street that many investors want to keep their shares. Perhaps they want to see whether Kerkorian will make a higher offer, suggested Efraim Levy, an equity analyst with Standard & Poor's Corp., to Bloomberg News.

GM's Wagoner remains under pressure to turn around the company. Last month GM's credit rating was reduced to "junk" status because of its declining market share.

On Tuesday, Wagoner announced plans to cut the company's North American work force by 25,000 hourly workers, or about 14 percent, though a stepped-up attrition program and by closing several factories over the next three years.

The Los Angeles Times is a Tribune Publishing newspaper.

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