GM stock falls 4% as Kerkorian acts to trim his stake

Billionaire seeks bigger casino-firm holding

November 23, 2006|By John O'Dell | John O'Dell,LOS ANGELES TIMES

LOS ANGELES -- Beverly Hills, Calif., investor Kirk Kerkorian disclosed yesterday that he had agreed to sell a quarter of his nearly 10 percent stake in General Motors Corp., signaling that he won't pursue a fight to remake the automaker's board.

The acknowledgment, contained in a regulatory filing by Kerkorian's privately held investment company Tracinda Corp., spoiled Thanksgiving for many GM investors as the automaker's shares fell to their lowest point in more than a month.

In heavy trading yesterday, GM shares declined $1.52, or almost 4.7 percent, to $31.09 - well below the $33 price at which Tracinda said its block would change hands. The stock would have to drop below $30.24 for Kerkorian to lose money on his investment.

"The news of Kerkorian lowering his position is what the market apparently feared most," Merrill Lynch & Co. analyst John Murphy wrote in a note to investors. "It now appears instead of becoming a more aggressive activist, he may be allocating his capital to other opportunities he believes have higher potential returns."

The sale of 14 million of Kerkorian's 56 million shares, scheduled to close in a private transaction tomorrow, would bring a gross profit of $38.6 million and free about $423 million for other investments.

Tracinda also offered yesterday to spend $825 million to acquire 15 million additional shares of MGM Mirage, which would boost its stake in the Las Vegas gaming and hotel company to 61.7 percent from 56.3 percent. The tender offer of $55 a share represents a 12 percent premium from MGM's closing price Tuesday of $49. The stock rose $5.21, or 10.6 percent, to $54.21 yesterday.

Analysts said they did not believe that Tracinda's offer signaled a bid to take MGM Mirage private. Tracinda said the plan to boost its investment "demonstrates our confidence in MGM Mirage and its management and our commitment to the company's future."

The timing of the GM and MGM Mirage announcements may have been coincidental. This week marked the first time since Oct. 6 that Tracinda was able to sell its GM stock because of a 45-day waiting period that kicked in when Jerome York, a Kerkorian associate, resigned as a GM director.

The lifting of that prohibition had fueled speculation for several days that Kerkorian would begin to reduce his GM holding.

In stepping down after just nine months on the board, York criticized directors for not doing their own research and relying too heavily on the automakers' executives. In particular, he and Kerkorian had been pressing the board to join the current alliance of Nissan Motor Co. and Renault to boost GM's turnaround efforts.

A spokeswoman for Tracinda said neither the company nor Kerkorian would comment on the GM stock sale.

There has been speculation since York resigned that Kerkorian might attempt to launch a proxy battle to take control of the automaker's board at next year's annual meeting. But many analysts doubted that strategy.

Industry analyst David Healy of Burnham Securities, who owns GM stock, said yesterday that Kerkorian's sell-off seemed to show "that he doesn't have the support he'd need for a proxy fight" to win shareholder votes to elect his own slate of directors and oust GM's chairman and chief executive, G. Richard Wagoner Jr.

Kerkorian had held a 9.9 percent interest in GM through Tracinda and will still hold 42 million shares, equal to a 7.4 percent stake. Despite his decision to sell a big chunk of his GM holding, Kerkorian will remain the automaker's third-largest investor.

Meanwhile, GM, which lost $10.6 billion last year and has posted a net loss of $2.3 billion in the first three quarters this year, is in the midst of an ambitious cost-cutting program as it tries to revitalize its North American automotive operations after losing market share to foreign brands for most of the past decade.

The company's stock had been gaining for much of this year as investors and analysts saw signs of progress from the turnaround plan, which includes closing 14 North American plants and slashing its manufacturing payrolls in the United States and Canada by about 35,000 jobs in the next few years.

GM shares hit their 52-week closing high, $36.19 on Oct. 24.

John O'Dell writes for the Los Angeles Times.

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