Billionaire Kerkorian boosts GM stake to 7.2 percent

Agence France Presse
June 8, 2005

NEW YORK (AFP) — 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.

Kerkorian’s Tracinda Corp. said the offer, which expired at midnight
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 May 4 with his offer of 31 dollars 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 United States and growing financial uncertainties, but that
it may also signal some effort to influence GM’s board or management.

GM shares rallied 4.2 percent to close Wednesday at 32.02.

The lack of sellers handing over their shares to Kerkorian shows 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.”

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

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 31 dollars a share,”
he wrote in a note reiterating his overweight rating.

But of the 16 Wall Street analysts covering the stock, only four
maintain a buy rating, according to Thomson First Call.

Bernard Klawans, fund manager for 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.”

“While it is encouraging that GM management is contemplating a lower
cost structure for the North American business, we do not believe that
much new information was revealed and GM’s commitments so far fall short
of what’s required,” said Rod Lache at Deutsche Bank.

“We expect GM North America to lose 3.2 billion dollars this year on a
pre-tax basis. Given the magnitude of the anticipated losses (and GM’s
current stock price), we believe the Street expects GM to make an
aggressive and credible restructuring announcement by year-end.”

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