Billionaire Kerkorian raising stake in GM to 9.5%

After completing stock purchases, his Tracinda Corp. will control 53.8
million shares of the automaker

The Detroit News
Friday, September 2, 2005

By Jeff Green / Bloomberg News

Billionaire investor Kirk Kerkorian will spend about $463 million to
raise his stake in General Motors Corp. to 9.53 percent in a bet that GM
can end losses that totaled $1.4 billion so far this year.

Kerkorian’s Tracinda Corp., GM’s third-largest shareholder, said in a
regulatory filing that it will increase its stake in the world’s biggest
automaker from about 7.2 percent with the purchase of 13.1 million
shares in three private transactions. After the purchases, he will
control 53.8 million of the shares.

Kerkorian, who sparked the biggest one-day jump in GM shares in 40 years
when he first disclosed his ownership in May, is stepping up purchases
after he failed to get as many shares as he hoped in a tender offer in
June. He’s buying the stock just as the sales gains sparked by GM’s
offer of employee discounts to all buyers are starting to wane.

“There’s so many problems there, he’s got to think that he’s got an
answer and that he can influence the company or that they’ll just pay
him to go away,” said Brian Bruce, who helps manage $18 billion in
equity, including GM shares, at PanAgora Asset Management in Boston.
“You’re not buying this because you think management has a good handle
on what they’re doing.”

Los Angeles-based Tracinda purchased 5 million shares on Aug. 26 for
$175 million and is scheduled to complete a purchase of 5.14 million
shares today for $183 million, according to the Securities and Exchange
Commission filing. He will buy another 3 million shares Tuesday for $105
million. Tracinda also entered into a $400 million credit facility with
Bank of America Corp.

Kerkorian paid from $35 to $35.71 per share in private transactions,
Tracinda said. Kerkorian, who controlled 22 million GM shares in early
May, originally offered $31 per share to buy an additional 28 million.
That tender offer expired June 7 with only about 40.7 million shares
purchased.

Kerkorian disclosed the new purchases the same day GM said its August
U.S. sales fell 13 percent, ending two straight months of gains driven
by its employee-discount offer.

The investment comes after GM lost $3 billion building cars and trucks
in the first half of this year as it cut production and paid higher
incentive and marketing costs to clear out unsold inventory. Chief
Executive Rick Wagoner this week said the outlook for 2006 is improving
as new models are expected to increase U.S. sales and material and
health-care costs may fall.

Kerkorian a decade ago launched a failed takeover bid for the former
Chrysler Corp. — now part of DaimlerChrysler AG — and won concessions
that included a representative on the Chrysler board. When he disclosed
that he was buying shares in Detroit-based GM, the news pushed up the
automaker’s stock 18 percent.

Kerkorian has said his investment in GM is “passive,” and on that basis,
GM’s board took a neutral stance on his original purchase. GM
spokeswoman Toni Simonetti said that GM does not comment on the actions
of individual shareholders.

Kerkorian will invest $276 million of his own money and borrow about
$187 million from Bank of America. The loans are unsecured. If the loan
balance exceeds $200 million, Kerkorian will be required to pledge the
GM shares as collateral, according to the filing.

The loan’s terms prevent Tracinda from making hostile transactions or
buying in excess of 10 percent of a company without permission of Bank
of America.

Kerkorian remains the third-largest GM shareholder after State Street
Corp. and Capital Research and Management, according to Bloomberg data.
GM’s large investors, including Capital, Brandes Investment Partners LP
and Southeastern Asset Management Inc., increased their holdings in the
first quarter by a combined 64 million shares as the stock hit a 13-year
low.

GM shares fell $1.22 to $32.07 Thursday on the New York Stock Exchange.
Through Wednesday, GM shares had risen 23 percent from the day before
Kerkorian first announced plans to acquire GM stock.