Kerkorian lowers his stake in GM by 25%
Analyst says proxy battle for automaker is less likely
November 23, 2006
Email this Print this BY MARK PHELAN
FREE PRESS BUSINESS WRITER
The likelihood that Kirk Kerkorian might try to oust General Motors Corp. Chairman Rick Wagoner appeared to diminish Wednesday on word that the billionaire investor sold 25% of his stake in the automaker -- 14 million shares.
Kerkorian's Tracinda Corp. sold the stock for $462 million to an unnamed buyer.
Before the sale, it had been widely suspected that Kerkorian would use his financial clout to attack Wagoner's leadership team, which spurned the alliance with Renault SA and Nissan Motor Co. that Kerkorian promoted.
"Selling his shares means he's less likely to mount a proxy fight" to take control of GM, said David Healy, analyst with Burnham Securities. "He's just stirring the pot. He's driving the stock up and down. GM's stock tends to react psychotically to Kerkorian's moves."
Added Hossein Nivi, dean of the college of business at the University of Detroit Mercy, "This is potentially a sigh of relief for GM management."
The identity of the purchaser of the stock was not immediately known. GM's stock price, which opened trading Wednesday at $32.35 a share, fell $1.52, or 4.6%, following the sale's disclosure.
News of the sale came the same day Kerkorian offered to buy up to $825 million worth of stock in casino operator MGM Mirage. He already controls the Las Vegas-based gaming company.
"The first thing you think of is that by selling one, he raised more than half the cash to buy the other," said Joe Phillippi, principal of AutoTrends, a Short Hills, N.J., auto consultant. "That's how it computes."
The $33-a-share price Kerkorian received for his GM stock is slightly higher than what it traded for before the sale was announced.
"It's interesting he got $33 a share," Phillippi said. "It normally takes some kind of a discount to move a big chunk of stock like that. Somebody must think GM's a good buy at $33."
The sale appears to represent a profit for Kerkorian, who accumulated his holding through several purchases at different prices in 2005.
GM had no comment. "It is not GM's practice to comment on the motivations, actions or potential actions of its stockholders," spokeswoman Rene Rashid-Merem said.
Kerkorian objected strongly to GM vetoing the Nissan-Renault alliance. His lieutenant Jerry York resigned from GM's board of directors Oct. 6 after a stinging attack on the company's rejection of the deal.
York and Kerkorian initiated talks with Renault-Nissan in April.
"If Kerkorian was planning a proxy fight" to oust Wagoner's management team, "he would probably have kept his shares," Nivi said. "Reducing his shares gives him less voice."
The talks with Renault and Nissan, which ended last month because GM management did not believe the deal would do the company much good, "created a tremendous amount of havoc," Nivi said. "GM management spent a lot of time distracted from product development by the discussions."
Kerkorian's Tracinda is now GM's fourth-largest shareholder, with 42 million shares. Kerkorian's share of the company fell from 9.9% to 7.4%. Tracinda had been GM's second-largest investor.
GM's stock has fallen 11% since Nov. 16 on speculation that Kerkorian would cut his stake, but is still up 60% this year as investors bet the company's cost-cutting moves and new products will return it to profitability.
"GM's management is doing a good job," Healy said. "Look at their results. The company will probably make $4 or $5 a share in 2006 and $8 or $9 in 2007." GM lost $10.6 billion in 2005.
Tracinda spokeswoman Carrie Bloom did not returns calls seeking comment.
Kerkorian sparked a surge in GM's stock price in May 2005 when he announced he planned to build a large stake in the company.
While he initially said he would be a passive investor, the self-made billionaire soon demanded a seat on GM's board for his longtime associate and adviser York, a former Chrysler Corp. executive with long experience in the auto industry.
York had been critical of the pace of GM's cost-cutting. Among other things, he advocated shedding the company's Saab and Hummer brands.
When GM management did not heed York's advice, he and Kerkorian asked Renault and Nissan CEO Carlos Ghosn if he would be interested in replacing Wagoner as GM's CEO.
Ghosn, who oversaw a fast and dramatic turnaround at Nissan, declined the offer, so Kerkorian and York floated the idea of folding GM into the Franco-Japanese alliance Ghosn had created.
Ghosn was interested, but GM brass was cool to the idea. When company officials did not pursue the alliance quickly enough to suit them, Kerkorian and York went public with the idea.
Contact MARK PHELAN at 313-222-6731 or
phelan@freepress.com.