Kerkorian to reduce his stake in GM
Beverly Hills investor Kirk Kerkorian disclosed Wednesday that he was selling a quarter of his nearly 10% stake in General Motors Corp., signaling to some analysts that he wouldn’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 Wednesday, GM shares declined $1.52, or 4.7%, 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 Friday, would bring a gross profit of $38.6 million and free up about $423 million for other investments.
Tracinda also offered Wednesday 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% from 56.3%. The tender offer of $55 a share represents a 12% premium from MGM Mirage’s closing price Tuesday of $49. The stock rose $5.21, or 10.6%, on Wednesday to $54.21.
Analysts said they did not believe that Tracinda’s offer signaled a bid to take MGM Mirage private. Tracinda said in a statement that 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 close 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 as a dramatic move to boost GM’s turnaround efforts.
Kerkorian had held a 9.9% interest in GM through Tracinda and will still hold 42 million shares, equal to a 7.4% stake.
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 costcutting program as it tries to revitalize its North American automotive operations after losing market share to foreign brands for most of the last 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. GM shares hit their 52-week closing high of $36.19 on Oct. 24.
Despite his decision to sell a big chunk of his GM holding, Kerkorian will remain the automaker’s third-largest investor.
A spokeswoman for Tracinda said neither the company nor Kerkorian would comment on the GM stock sale.
“It’s Kerkorian’s style,” said industry analyst David Healy of Burnham Securities. “He should either fish or cut bait, but instead he buys a little, sells a little and constantly stirs things up.”
There has been speculation since York resigned as a GM director last month that Kerkorian may 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, and Healy, who owns GM stock, said Wednesday 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, Rick Wagoner.
Wagoner’s turnaround plan calls for GM to close 14 North American plants and slash its manufacturing payrolls in the U.S. and Canada by about 35,000 jobs in the next few years. GM also has negotiated with its labor unions for substantial savings on future medical costs.
Wagoner says the moves will save GM $9 billion a year.
Kerkorian’s stock sale may indicate that “he doesn’t think there will be a blip in Rick Wagoner’s plan -- showing he can’t create the controversy he needs to change the board’s direction,” automotive analyst Kevin Reale of AMR Research told Reuters on Wednesday.
Kerkorian began building his 9.9% GM holding in 2005, ultimately investing $1.68 billion in the company. He sold a block of shares at the end of 2005 for tax purposes but reacquired them in 2006; early this fall Kerkorian said he might purchase an additional 12 million shares to push his stake to just above 10%.
He dropped those plans when talks about a possible alliance of GM, Nissan and Renault fell apart in early October.
Kerkorian and York had been the principal architects of the talks, which dissolved when GM said Nissan and Renault would benefit most from a three-way tie-up and should pay GM a multibillion-dollar premium to move forward with the plan. York resigned from GM’s board the day after the talks ended.
Separately Wednesday, GM announced that as part of its North American restructuring it would cease manufacturing conventional minivans this decade and concentrate instead on new types of crossovers: vehicles that are built on passenger-car platforms but feature sporty wagon or sport-utility styling and roominess.
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