Billionaire Kerkorian raises stake in GM
By Bernard Simon in Toronto
FT
June 8 2005 17:31
Investors drove General Motors’ shares higher on Wednesday after a
tepid response to a tender offer launched by Kirk Kerkorian, the
reclusive billionaire.
Tracinda, Mr Kerkorian’s investment company, disclosed that only 18.9m
shares had been tendered at the offer price of $31, far fewer than the
28m Mr Kerkorian had sought. Tracinda now owns 7.2 per cent of GM’s
stock, compared with a possible 8.9 per cent if the offer had been
fully subscribed.
The 88 year-old Mr Kerkorian, who made his name as a corporate raider
in the casino and automotive sectors, has given no indication of his
next move. Tracinda has until now insisted that it would be a passive
investor, but few analysts have believed it.
`I don’t think he’s ever made a passive investment in his life,’ said
David Healy, analyst at Burnham Securities.
Ten years ago, Mr Kerkorian made an audacious attempt to buy Chrysler,
the third-biggest US carmaker. The attempt failed, but he was left
with a large block of shares that he sold at a hefty profit.
`At this point, he’s a minor nuisance to GM management,’ MrHealy said.
Himanshu Patel, analyst at JP Morgan, added `the fact that the tender
offer was under-subscribed by a relatively large degree raises the
prospect that Tracinda may raise its price’.
Mr Kerkorian’s offer of $31 was almost one-fifth above GM’s share
price when the offer was made in early May. The stock gained 5.2 per
cent to $32.32 shortly before midday on Wednesday.
Rick Wagoner, GM chief executive, unveiled a four-pronged strategy on
Tuesday to revive the company’s fortunes, including a new stable of
cars and trucks, a revamped sales and marketing strategy for GM’s
eight brands, plant closures, and an attack on spiralling healthcare
costs.
But many analysts remain bearish citing, among other factors, the
carmaker’s continuing market share losses in North America, its heavy
exposure to gas-guzzling sport-utility vehicles, and its high fixed
costs.
`The situation at GM is going to get a lot worse before it gets
better,’ Mr Healy said. Rob Hinchliffe, analyst at UBS Securities, is
projecting a share price of $20. `GM needs a more aggressive plan to
restructure the business,’ Mr Hinchliffe said on Wednesday.
The lukewarm response to Mr Kerkorian’s offer suggests however that
many investors share his view that the market has under-estimated GM’s
value.
Describing the prospects for GM as `fairly balanced’, Michael
Bruynesteyn of Prudential Equity projected a further rise in the
stock.
Mr Bruynesteyn said he was swayed by the likelihood that GM would
maintain its $2-a-share dividend. At the current share price, the
dividend yield is about 6.5 per cent, a level matched by few other big
US companies.