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Fri, Jun 10, 2005 - Page 12 News List

Kerkorian ups stake in GM to 7.2%

AUTO MARKET A share offer by the billionaire last month that expired on Wednesday resulted in the purchase of about 19 million shares of GM


Billionaire Kirk Kerkorian boosted his stake in General Motors to 7.2 percent following last month's surprise share offer for the struggling auto giant, his holding company announced on Wednesday.

Kerkorian's Tracinda Corp said that the offer, which expired at midnight on Tuesday, resulted in the purchase of an estimated 18.9 million GM shares.

As a result, the 87-year-old Kerkorian, a casino magnate who has bought and sold MGM studios and was once Chrysler Corp's largest shareholder, has nearly doubled his holding in GM from 3.89 percent.

Kerkorian stunned financial markets on May 4 with his offer of US$31 a share for GM, at the time 13 percent above the market price.

Tracinda indicated at the time that the move was "solely for investment purposes."

Analysts said that the move appeared to be a vote of confidence in the world's biggest automaker, which has been in turmoil over eroding market share in the US and growing financial uncertainties, but that it may also signal some effort to influence GM's board or management.

Keeping the faith

The lack of sellers handing over their shares to Kerkorian indicates that despite its flaws, investors still have faith in the auto giant, according to Michael Metz, chief investment strategist at Oppenheimer and Co.

"If [the tender offer] had been oversubscribed, I think the stock would have gone lower," Metz said.

"There wasn't an excessive supply coming out at that price, so technically that's a good sign. I also think the Street is taking the restructuring news favorably," he said.

On Tuesday, GM said it would cut at least 25,000 jobs, or 13.8 percent of its US workforce, by 2008 to generate US$2.5 billion in annual savings. The company also announced plans to close additional assembly and component plants to help get GM North America back to profitability.

Share purchase

* The purchase comes after Kirk Kerkorian last month offered US$31 for each GM share, at that time 13 percent above the market price.

* The purchase has almost doubled Kerkorian's holding in GM.

* Analysts see the move as a vote of confidence in the troubled company.

* It may also indicate a bid to influence GM's board or management.

Downside support

JP Morgan analyst Himanshu Patel said that the offer effectively places a floor for the stock.

"Kerkorian's tender offer provides some downside support as it should remove some/many of the sellers of the stock below US$31 a share," he wrote in a note that reiterated his "overweight" rating.

Bernard Klawans, fund manager of the Valley Forge Fund, remained unconvinced about GM's prospects.

"Kerkorian is just another investor," he said. "General Motors is in trouble. I don't see their management doing anything but waving flags. Yesterday's news isn't anything to get excited about; it's actually very discouraging."

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