Kerkorian’s GM Shares Profit on Renault Alliance Plan (Update3)
Bloomberg
July 12 2006
July 12 (Bloomberg) — Billionaire Kirk Kerkorian turned a money-losing
stake in General Motors Corp. into a profitable investment by proposing
the world’s largest automaker join an alliance with Renault SA and
Nissan Motor Co.
Since Kerkorian unveiled his plan June 30, GM’s stock has risen 7.9
percent. His 56 million shares have added $122 million in value since
June 29.
Directors of GM on July 7 authorized Chief Executive Officer Rick
Wagoner to study the proposal. Kerkorian’s Tracinda Corp., which called
for a review by an independent board committee, is pushing to have
GM work with Carlos Ghosn, the CEO who has led Nissan to six straight
years of record profits. Kerkorian, listed by Forbes Magazine as the
19th richest American at $10 billion, made his fortune pressuring
companies to boost stock prices.
"Kerkorian is sending a public message to Rick Wagoner," said Brian
Bruce, who helps manage $18 billion at PanAgora Asset Management in
Boston, including shares of Detroit-based GM. "He’s trying to force
Wagoner to move quickly and act more like Carlos Ghosn in order to
save his job."
The 89-year-old financier has a net investment of about $1.52 billion
in GM shares since April 2005, according to U.S. regulatory filings
and data compiled by Bloomberg.
His transactions included selling 12 million shares in December for
$252 million to show a loss for tax purposes and then buying the same
number in January for $263 million. Assuming he sold his highest-priced
shares for the tax loss, his GM investment is profitable when the
stock is above about $27.14, according to Bloomberg data.
At today’s close of $29.62 at 4:19 p.m. in New York Stock Exchange
composite trading, his stake has gained $139 million to about $1.66
billion. GM shares rose 12 cents today.
Dow’s Biggest Gainer
The shares closed above $27.14 on June 30 and in each of the seven
trading days since. The price topped $27.14 only five other times
between October and June 30. GM shares have gained 53 percent this
year, the most in the Dow Jones Industrial Average, after losing 52
percent of their value in 2005 as GM posted a $10.6 billion loss.
Carrie Bloom, a spokeswoman for Los Angeles-based Tracinda, declined to
comment on the value of Kerkorian’s shares. He is GM’s fourth-largest
investor, with a 9.9 percent stake.
Kerkorian wants Wagoner to speed up his plan to revive GM, a person
familiar with Kerkorian’s strategy said last week. Wagoner, 53, is
cutting 30,000 union jobs and closing factories in North America to
reduce annual costs by $8 billion this year.
Kerkorian said in the June 30 letter that Nissan and Renault are
receptive to buying "a significant minority interest" in GM.
In an interview on CNBC yesterday, Wagoner said: "We’re looking
forward to sitting down. Our minds are completely open."
`In It for Kirk’
The billionaire investor "is in it entirely for Kirk, to drag his
stock value up," said New York-based Burnham Securities Inc. analyst
David Healy, who has covered the auto industry for more than 40
years. "This deal is like a mackerel that’s been out in the sun too
long. It’s shiny, but it smells when you get too close."
Southeastern Asset Management Inc. President Staley Cates said in
a May speech to investors that he expects GM shares to gain value,
in part because of Kerkorian. Cates said Kerkorian "has one of the
best investment records in American history."
The Memphis, Tennessee-based fund, along with Los Angeles- based
Capital Research & Management Co. and Brandes Investment Partners LP
in San Diego increased their GM stakes and now own more than a third
of the automaker’s shares.
Those funds’ GM holdings added $1.9 billion in value this year,
according to Bloomberg data. Brandes spokesman Dan Hilley, Southeastern
spokeswoman Lee Harper and Capital spokesman Chuck Freadhoff wouldn’t
comment on the proposed alliance.
Bonds Rise
GM’s 8.375 percent note due in July 2033 fell 0.6 cent today to 79.69
cents on the dollar. The note yielded 10.7 percent, according to Trace,
the NASD’s bond-price reporting service.
It’s getting cheaper to insure GM debt against default. The price
to protect $10 million of bonds for five years using so- called
credit-default swaps has fallen to $823,500 from $942,000 at the end
of June, according to prices on Bloomberg.
Kerkorian, as part of his unsuccessful bid to take over Chrysler
Corp. a decade ago, won representation on the Chrysler board and
later supported Daimler-Benz AG’s $36 billion purchase of the U.S.
automaker in 1998. He later unsuccessfully sued DaimlerChrysler over
the details of the combination.
DaimlerChrysler lawyers estimated in 2003 that Kerkorian made $2.7
billion on his Chrysler investment.
Military Aircraft
The billionaire is the son of an Armenian immigrant rancher in
California’s San Joaquin Valley. He began by brokering the sale
of surplus military aircraft after World War II. He later created
Trans International Airways, which he bought and sold several times,
eventually selling to Transamerica Corp. for $149 million.
In April 2005, Sony Corp. and other investors bought Kerkorian’s
Metro-Goldwyn-Mayer Inc. film studio for $2.9 billion. It was the third
time Kerkorian sold MGM, which he last bought in 1996 for $1.3 billion.
"This is a bigger game than I’ve ever seen Kerkorian play," said
Ken Londoner, 39, who followed his strategy as an investor in
Chrysler. "This is a three-dimensional game of poker that I really
can’t figure out. But you never bet against Kirk."