Wednesday, May 4, 2005 | 11:15 a.m.
Kirk Kerkorian, the billionaire who tried to take Chrysler Corp. private a decade ago, said he planned to double a previously undisclosed stake in General Motors Corp. to 8.8 percent after a plunge in GM shares this year.
Kerkorian's Tracinda Corp. offered $868 million for as many as 28 million GM shares at $31 each, raising his holdings in the Detroit-based automaker to 50 million shares, Tracinda said in a statement today. The purchase is "solely for investment purposes," the Los Angeles-based firm said. GM shares soared as much as 11 percent.
The purchase would make Kerkorian, 87, GM's third largest- shareholder, according to data compiled by Bloomberg. Tracinda holds a controlling interest in Las Vegas-based casino operator MGM Mirage. He is ranked 41st on the Forbes list of the world's wealthiest people, with a net worth estimated at $8.9 billion.
Shares of GM, the world's biggest automaker, have fallen 42 percent in the 12 months through Tuesday as profits fell and the Detroit-based automaker lost market share to rivals such as Toyota Motor Corp. GM reported a $1.1 billion loss in the first quarter, its biggest quarterly loss in 13 years, after falling sales prompted it to cut production and spend more on marketing and rebates.
"He's going to put their feet to the fire like he did Chrysler," said John Kornitzer, who manages $5.5 billion at Kornitzer Capital Management in Shawnee Mission Kansas, including GM shares. "They'll get more lean and efficient. They'll get tougher on the unions. It's good."
GM shares rose $2.73, or 9.8 percent, to $30.50 at 10:01 a.m. in New York Stock Exchange composite trading. GM spokesman Tom Kowaleski declined to comment.
As part of Kerkorian's offer, stockholders will be entitled to keep GM's 50-cent quarterly dividend, which is to be paid next month. On that basis, the offer is a 13.4 percent premium over GM's closing price of $27.77 Tuesday, Tracinda said in the statement.
Kerkorian began buying shares in Chrysler Corp. in 1990 after the automaker had a third-quarter loss of $214 million. He paid $12.37 a share in December 1990 for his initial 22 million shares, then bought 6 million more shares at $10.13 each on Oct. 10, 1991, as the company headed toward a full-year loss of $795 million.
In 1992, Kerkorian asked for representation on the board after the retirement of Chrysler Chairman Lee Iacocca, withdrawing the request after discussions with Iacocca's successor, Robert Eaton, according to U.S. Securities and Exchange Commission filings at the time.
In 1995, he unsuccessfully tried to take Chrysler private. He settled instead for representation on the Chrysler board and later voted his shares in favor of the 1998 purchase of Chrysler by Daimler-Benz AG.
Kerkorian last month lost a lawsuit accusing DaimlerChrysler AG of duping investors by disguising the takeover of Chrysler by Daimler-Benz as a "merger of equals." Kerkorian is appealing the ruling.
Kerkorian faces a 2003 lawsuit from DaimlerChrysler shareholder Donald Johnson claiming Kerkorian wrongfully sold DaimlerChrysler shares after obtaining inside information from a Tracinda employee on the automaker's board. A U.S. District judge in California ruled in August that the suit can go forward. Kerkorian is appealing that ruling.
GM, which is negotiating with unions to reduce the $5.6 billion it expects to pay for employee health costs this year, on April 19 abandoned its 2005 profit forecast of as much as $2 per share, excluding some expense, because of uncertainty about the outlook for the year, particularly health care costs. It said it can't project earnings until it resolves the "health-care cost crisis."
Kerkorian's involvement with GM may spur the United Auto Workers union quicken efforts to cut GM's health care costs, Mirko Mikelic, who oversees $14 billion bonds at Fifth Third Asset Management in Grand Rapids, Mich., said in an interview.
"I think the unions would prefer to negotiate with the team in place now than an investor coming in," Mikelic said.
GM's 8.375 percent bonds maturing in 2033 rose about 2 cents to 78 cents on the dollar, yielding 10.9 percent, according to Trace, the bond-price reporting system of the NASD. The bonds have weakened since GM cut its annual profit forecast on March 16, falling to 72 cents last month, an all-time low.
Kerkorian's investment "doesn't solve the problems at GM -- the difficult U.S. market and the difficult problem negotiating with the unions," said Roberto Cominotto, a fund manager at Ehinger & Armand von Ernst, AG in Zurich, a private bank that is part of UBS and manages the equivalent of about $16 billion for clients. "Nothing's changed."
archive
