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Kerkorian Spurs Surge in GM Shares With Stake, Offer (Update12)
May 4 (Bloomberg) -- Kirk Kerkorian, who shook up Chrysler Corp. with
a hostile takeover bid a decade ago, disclosed he is building an 8.8
percent stake in General Motors Corp., sending GM shares to their
biggest gain in more than 40 years.
Kerkorian's Tracinda Corp. today said it holds 22 million shares of
GM and will buy 28 million more at $31 each. Kerkorian, who is buying
the stock after a 42 percent decline in the past year, is making a
"strictly passive" investment in GM, his attorney Terry Christensen
said.
"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."
Kerkorian, 87, may push for changes at the world's biggest automaker
after its U.S. market share fell to an 80-year low and it reported a
$1.1 billion first-quarter loss. Chief Executive Rick Wagoner must
now contend with the specter of an activist Kerkorian while trying
to rebuild sales, develop better vehicles and wrest health-care
concessions from U.S. workers.
After Kerkorian bought shares in Chrysler starting in 1990, he
pressured the automaker to increase its dividend, buy back shares
and add a Tracinda employee to the automaker's board.
Christensen said in an interview that Kerkorian supports GM's
management and is buying the stock, which was near a 13-year low this
week, because it was "depressed."
`No Agenda'
"Mr. Kerkorian comes to the table here with no agenda and no proposals
to make and just has faith that this company is going to exert itself
as the strong company that it is," Christensen said. GM spokesman
Tom Kowaleski declined to comment.
GM shares rose $5.03, or 18 percent, to $32.80 at 4:01 p.m. in New York
Stock Exchange composite trading. It's the biggest gain in at least
44 years, according to Standard & Poor's analyst Howard Silverblatt.
"We haven't yet seen aggressive moves by Wagoner and his team," said
Pete Hastings, a corporate bond analyst at Morgan Keegan Inc. in
Memphis, Tennessee. "They need to take some significant steps."
The purchase of 50 million shares would make Kerkorian GM's third
largest-shareholder, according to data compiled by Bloomberg. His
current stake represents about 3.89 percent of the company.
Christensen said Tracinda doesn't plan to raise the offer price for the
shares when it begins buying them in about a week. Tracinda officials
spoke to GM executives today, Christensen said.
Tracinda holds a controlling interest in casino operator MGM Mirage.
Kerkorian is ranked 41st on the Forbes list of the world's wealthiest
people, with a net worth estimated at $8.9 billion.
Dividend
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 yesterday, Tracinda said in the statement.
GM's 8.375 percent bonds maturing in 2033 rose about 3 cents to
79 cents on the dollar, yielding 10.8 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.
GM's bonds have been losing value because ratings companies say
they may further downgrade about $200 million of GM's long- term and
short-term debt, excluding asset-backed bonds, most of which is at
its auto finance unit. Standard & Poor's, Fitch Ratings and Moody's
Investors Service rate GM at the lowest investment grade level.
Kerkorian, the son of an Armenian immigrant rancher in California's
San Joaquin Valley, became a billionaire by buying airlines and
casinos for less than they turned out to be worth.
First Airline
In 1965, Kerkorian invested $3 million in Trans International
Airways -- an airline he had originally created -- and later sold it
Transamerica Corp. for $149 million. He bought his first casino in
1967 and built the 1,500-room International Hotel, then the largest
hotel in Las Vegas.
He bought the MGM film studio for the first of three times in 1970.
His last MGM purchase was in 1996, for $1.3 billion in cash.
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.
He tried to buy all of the automaker in April 1995 for $21 billion.
While the effort collapsed when he couldn't line up the financing,
he increased his stake and continued to exert pressure on the
company, giving his support to the 1998 combination with Stuttgart,
Germany-based Daimler-Benz AG.
Daimler Suit
Two years later, Kerkorian sued DaimlerChrysler AG and Chief Executive
Officer Juergen Schrempp after Schrempp told the Financial Times
he'd planned to take control of Chrysler following a deal that was
billed as a merger of equals. Tracinda last month appealed a lower
court ruling Kerkorian wasn't duped about the 1998 transaction.
In December 2003 DaimlerChrysler lawyers estimated Kerkorian made
about $2.7 billion on his Chrysler investment when the company was
purchased by Daimler-Benz.
In buying GM shares, Kerkorian is "gambling that the shares can't
go much lower and are going to go higher," said Eugene Jennings,
a business professor emeritus at Michigan State University. "This
should indicate to the board what happens when you mismanage
shareholder value."
Tracinda said it disclosed the investment as a tender offer in response
to rumors of the transaction circulated over the weekend.
Removing Doubt
The firm said it "decided to go forward with this tender offer to
remove any doubt in the marketplace as to its investment purposes,"
the company said in the statement.
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."
Union Talks
"What investors seem to be saying today is maybe Kerkorian can
help the process along between GM" and the UAW regarding efforts to
cut health-care costs, Brian Reynolds, chief market strategist at
MS Howells & Co., said in an interview. The Detroit- based United
Auto Workers union declined to comment on Tracinda's announcement,
spokesman Paul Krell said.
Tracinda, which was named for Kerkorian's daughters Tracy and Linda,
may try to increase its holdings in GM if management isn't aggressive
enough in addressing the waning profits, Morgan Stanley analyst Steve
Girsky wrote in a report to investors.
General Motors could raise as much as $14.2 billion, or about $25
a share, if it sold its residential mortgage and insurance units,
Merrill Lynch said in a March 24 report. As an alternative, the units
may be spun off to GM shareholders, the report said.
Tracinda's investment "indicates to me that the headwinds the company
is facing seem to Kerkorian to be short-term in nature," said Carol
Moreno, an analyst at TCW Group, which has $109 billion in assets,
including shares of General Motors. "I would imagine that he has been
in contact with management prior to this, and if anything, it gives
the impression that there is value to the stock and that management
is on the right track."
To contact the reporter of this story: Bill Koenig in Southfield,
Michigan at [email protected]; Jeff Green in Southfield, Michigan
at [email protected]
May 4 (Bloomberg) -- Kirk Kerkorian, who shook up Chrysler Corp. with
a hostile takeover bid a decade ago, disclosed he is building an 8.8
percent stake in General Motors Corp., sending GM shares to their
biggest gain in more than 40 years.
Kerkorian's Tracinda Corp. today said it holds 22 million shares of
GM and will buy 28 million more at $31 each. Kerkorian, who is buying
the stock after a 42 percent decline in the past year, is making a
"strictly passive" investment in GM, his attorney Terry Christensen
said.
"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."
Kerkorian, 87, may push for changes at the world's biggest automaker
after its U.S. market share fell to an 80-year low and it reported a
$1.1 billion first-quarter loss. Chief Executive Rick Wagoner must
now contend with the specter of an activist Kerkorian while trying
to rebuild sales, develop better vehicles and wrest health-care
concessions from U.S. workers.
After Kerkorian bought shares in Chrysler starting in 1990, he
pressured the automaker to increase its dividend, buy back shares
and add a Tracinda employee to the automaker's board.
Christensen said in an interview that Kerkorian supports GM's
management and is buying the stock, which was near a 13-year low this
week, because it was "depressed."
`No Agenda'
"Mr. Kerkorian comes to the table here with no agenda and no proposals
to make and just has faith that this company is going to exert itself
as the strong company that it is," Christensen said. GM spokesman
Tom Kowaleski declined to comment.
GM shares rose $5.03, or 18 percent, to $32.80 at 4:01 p.m. in New York
Stock Exchange composite trading. It's the biggest gain in at least
44 years, according to Standard & Poor's analyst Howard Silverblatt.
"We haven't yet seen aggressive moves by Wagoner and his team," said
Pete Hastings, a corporate bond analyst at Morgan Keegan Inc. in
Memphis, Tennessee. "They need to take some significant steps."
The purchase of 50 million shares would make Kerkorian GM's third
largest-shareholder, according to data compiled by Bloomberg. His
current stake represents about 3.89 percent of the company.
Christensen said Tracinda doesn't plan to raise the offer price for the
shares when it begins buying them in about a week. Tracinda officials
spoke to GM executives today, Christensen said.
Tracinda holds a controlling interest in casino operator MGM Mirage.
Kerkorian is ranked 41st on the Forbes list of the world's wealthiest
people, with a net worth estimated at $8.9 billion.
Dividend
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 yesterday, Tracinda said in the statement.
GM's 8.375 percent bonds maturing in 2033 rose about 3 cents to
79 cents on the dollar, yielding 10.8 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.
GM's bonds have been losing value because ratings companies say
they may further downgrade about $200 million of GM's long- term and
short-term debt, excluding asset-backed bonds, most of which is at
its auto finance unit. Standard & Poor's, Fitch Ratings and Moody's
Investors Service rate GM at the lowest investment grade level.
Kerkorian, the son of an Armenian immigrant rancher in California's
San Joaquin Valley, became a billionaire by buying airlines and
casinos for less than they turned out to be worth.
First Airline
In 1965, Kerkorian invested $3 million in Trans International
Airways -- an airline he had originally created -- and later sold it
Transamerica Corp. for $149 million. He bought his first casino in
1967 and built the 1,500-room International Hotel, then the largest
hotel in Las Vegas.
He bought the MGM film studio for the first of three times in 1970.
His last MGM purchase was in 1996, for $1.3 billion in cash.
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.
He tried to buy all of the automaker in April 1995 for $21 billion.
While the effort collapsed when he couldn't line up the financing,
he increased his stake and continued to exert pressure on the
company, giving his support to the 1998 combination with Stuttgart,
Germany-based Daimler-Benz AG.
Daimler Suit
Two years later, Kerkorian sued DaimlerChrysler AG and Chief Executive
Officer Juergen Schrempp after Schrempp told the Financial Times
he'd planned to take control of Chrysler following a deal that was
billed as a merger of equals. Tracinda last month appealed a lower
court ruling Kerkorian wasn't duped about the 1998 transaction.
In December 2003 DaimlerChrysler lawyers estimated Kerkorian made
about $2.7 billion on his Chrysler investment when the company was
purchased by Daimler-Benz.
In buying GM shares, Kerkorian is "gambling that the shares can't
go much lower and are going to go higher," said Eugene Jennings,
a business professor emeritus at Michigan State University. "This
should indicate to the board what happens when you mismanage
shareholder value."
Tracinda said it disclosed the investment as a tender offer in response
to rumors of the transaction circulated over the weekend.
Removing Doubt
The firm said it "decided to go forward with this tender offer to
remove any doubt in the marketplace as to its investment purposes,"
the company said in the statement.
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."
Union Talks
"What investors seem to be saying today is maybe Kerkorian can
help the process along between GM" and the UAW regarding efforts to
cut health-care costs, Brian Reynolds, chief market strategist at
MS Howells & Co., said in an interview. The Detroit- based United
Auto Workers union declined to comment on Tracinda's announcement,
spokesman Paul Krell said.
Tracinda, which was named for Kerkorian's daughters Tracy and Linda,
may try to increase its holdings in GM if management isn't aggressive
enough in addressing the waning profits, Morgan Stanley analyst Steve
Girsky wrote in a report to investors.
General Motors could raise as much as $14.2 billion, or about $25
a share, if it sold its residential mortgage and insurance units,
Merrill Lynch said in a March 24 report. As an alternative, the units
may be spun off to GM shareholders, the report said.
Tracinda's investment "indicates to me that the headwinds the company
is facing seem to Kerkorian to be short-term in nature," said Carol
Moreno, an analyst at TCW Group, which has $109 billion in assets,
including shares of General Motors. "I would imagine that he has been
in contact with management prior to this, and if anything, it gives
the impression that there is value to the stock and that management
is on the right track."
To contact the reporter of this story: Bill Koenig in Southfield,
Michigan at [email protected]; Jeff Green in Southfield, Michigan
at [email protected]