Icahn Planning to Buy Major Stake in GM

Carl Icahn, the billionaire financier and corporate raider, on Friday took aim at one of the biggest targets on Wall Street by planning to buy a major stake in General Motors Corp., a company that has long been criticized for not doing more to boost the value of its stock.

Indeed, some analysts quickly speculated that Icahn would put more pressure on management at the giant auto maker to further unlock the value of its Hughes Electronics Corp. unit in order to lift GM’s own stock price.

The Icahn disclosure alone sparked a rally in GM’s shares Friday. The stock, which had plunged 38% between April 30 and June 30, jumped $4.56 a share to close at $70 in composite trading on the New York Stock Exchange.

Hughes, a provider of satellite communications services such as DirecTV, is wholly owned by GM but also has its own tracking stock. Hughes’ stock gained $2.13 a share to close at $31 on the NYSE.

GM said Icahn told the company that he plans to buy more than $15 million of GM shares, but less than 15% of the auto maker’s total common shares outstanding. A 15% interest, at current prices, would cost Icahn more than $5 billion.

The Detroit-based company said Icahn’s one-page letter did not indicate why the financier decided to invest in GM, but GM itself conceded that its stock “is undervalued at its current trading price” and thus makes “an attractive investment.”

But GM also defended its record for enhancing its investors’ wealth.

“We have returned more than $34 billion to our shareholders since 1997,” GM Chairman John F. Smith Jr. said in a statement. He noted, for instance, that GM is in the middle of buying back an additional $1.4 billion of its stock in open-market purchases.

Even so, the auto maker’s stock in the last five years has gained only one-third the increase achieved by the broader stock market, as measured by the benchmark Standard & Poor’s 500 index. And some analysts have contended that Hughes’ value is not fully reflected in GM’s stock price, which trades for a mere seven times GM’s expected per-share profit for 2000.

That could change with the arrival of Icahn, 64, who has made a career out of investing in--or buying outright--companies that he believes are undervalued by the market, mismanaged or both. And the pressure he typically brings on the company’s management often leads to sizable changes that can send its stock price higher, making a big profit for Icahn and other investors.

“My inclination is to believe the nature of GM will never be the same,” said Mark Stevens, the author of “King Icahn: The Biography of a Renegade Capitalist.” “Your instinct tells you that GM would be worth more broken up. There’s bureaucracy, and inability for the entrepreneurial instinct to rise to the surface, and complacency.”

GM spokeswoman Toni Simonetti said Icahn also had met with “a senior GM official,” but she didn’t know the details of the conversation. “His intent, as we know it, is to acquire stock,” she said.

But analysts remember how another rich investor, Kirk Kerkorian, shook up Chrysler Corp. in the mid-1990s by starting a hostile takeover attempt with former Chairman Lee Iacocca. The effort failed, but Kerkorian reaped millions of dollars in profit from his shares of Chrysler, which later merged with Daimler-Benz to create DaimlerChrysler.

“I think they’re a little nervous,” said Michael Bruynesteyn, a Prudential Securities analyst who worked in GM’s finance department for 10 years. “Given the guy’s record and what Kerkorian did over at Chrysler, they have reason to be.”

Icahn’s most recent battle involved Nabisco Group Holdings, formerly known as RJR Nabisco Holdings Corp. For years Icahn tried to replace the company’s directors and force the company to spin off its stake in its Nabisco food unit.

The company instead spun off its tobacco business, and this year the Nabisco food group agreed to be bought by Philip Morris Cos., owner of Kraft Foods. But all the sparring ultimately brought Icahn hundreds of millions of dollars in profit from his stock in the companies.

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Revving Up

The battered shares of General Motors rallied Friday after financier Carl Icahn disclosed plans to buy a major stake in the auto maker.

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Friday: $70.00, up $4.56

Source: Bloomberg News