Billionaire offers to boost stake to nearly 9 percent

Wednesday saw the biggest one-day jump in GM stock in more than two decades.
KNIGHT RIDDER NEWSPAPERS
DETROIT -- Billionaire investor and Las Vegas casino mogul Kirk Kerkorian has made an $870 million offer to become one of the largest shareholders of General Motors Corp., a move that boosted GM's previously plunging stock price and quickly caused a flurry of speculation about Kerkorian's motives.
Kerkorian, an aggressive investor who once tried to take over Chrysler Corp. and was its largest shareholder before it was acquired by German automaker Daimler-Benz AG, would quickly become GM's third-largest shareholder and could exercise enormous influence.
Kerkorian's personal investment fund quietly bought up 3.9 percent of GM's shares in late April. His latest effort, an attempt to buy as many as 28 million shares of GM stock at $31 each, would boost his ownership stake to 8.84 percent of GM.
Because Kerkorian's stake was below the 5 percent level that requires public disclosure of his investment, not even GM knew he had bought millions of shares last month. The reclusive billionaire's sudden interest in GM is notable because he has a track record of taking aggressive actions with his past investments, from a very public but failed effort to take over Chrysler in 1995 to selling off huge chunks of MGM's valued film library to suing DaimlerChrysler for $1 billion on allegations of misleading him in the 1998 merger deal.
Rumors of interest
Kerkorian's personal investment firm, Tracinda Corp., said the proposed purchase was for "investment purposes" only. It said it made the announcement Wednesday morning because rumors of its interest in GM had begun to slip out.
Kerkorian confidant Terry Christensen said the move was "a sign of faith in the company," at a time many on Wall Street have fled GM. Tracinda contacted GM early Wednesday to let officials know of its interest.
"It's a good day when a value investor like Kirk Kerkorian invests enough money to buy 50 million shares of that company's stock," said Christensen, Kerkorian's attorney and spokesman, who added Kerkorian, 87, would not seek a seat on GM's board as he did with Chrysler. He likened the move to Kerkorian's bargain-basement purchase of Chrysler stock back in 1990, when the stock market shunned the smallest Detroit automaker.
News of Kerkorian's offer boosted GM shares 18 percent, or $5.03, on Wednesday as investors followed the lead of a man whose wealth Forbes magazine pegs at $5.8 billion. It was the biggest one-day jump in GM stock in more than two decades as more than 60 million shares of GM were traded, six times the normal daily volume for GM.
Valuable move
As a result, the total value of GM stock jumped Wednesday from $15.7 billion to $18.5 billion.
GM shares finished the day at $32.80, the highest they've been since a mid-March profit warning by GM, an announcement that began an ugly month-and-a-half stretch of bad news for the automaker.
GM had little to say about Kerkorian's announcement.
"GM typically does not express a view on specific investor activity. GM's board and management are committed to enhancing shareholder value for all of our investors," read a statement from GM.
The automaker also noted Kerkorian said his past and future purchases of GM stock were "solely for investment purposes."
In recent weeks, GM stock had fallen to levels not seen in a decade, much of that because the automaker has refused to give Wall Street financial guidance for the rest of the year, citing a "health-care cost crisis." GM's one-day jump pulled up the overall stock market as well.
Kerkorian's history with Chrysler and MGM left experts in the automotive and financial communities trying to guess Wednesday what Kerkorian would try to do with GM, which just two weeks ago announced its worst financial quarter in more than a decade.
The informed speculation ranged widely. Some had Kerkorian trying to force GM to sell parts of its profitable GMAC money-lending business. Others see GM using the threat of a Kerkorian takeover to wangle health-care concessions from the UAW. A few argued Kerkorian would force GM management to restructure the ailing automaker, shutting down plants and laying off tens of thousands of workers, or selling off big chunks of the business, such as Cadillac or GM Powertrain.
'Twists and turns'
"Our expectation is that the Tracinda/GM story will take many twists and turns over many quarters," analyst John Casesa told clients at brokerage Merrill Lynch. Casesa, who said in a note that he expects a "long, drawn-out battle," raised his rating on GM from "sell" to "neutral," citing Kerkorian's interest in the beleaguered automaker.
"There is no doubt in our mind that Tracinda's interest is not in the auto business, but rather in unlocking value embedded in noncore businesses, including GMAC's nonauto subsidiaries," Casesa said.
GMAC, which has long generated the bulk of GM's profits, has both a mortgage business and an insurance business within it. Casesa and others speculated Kerkorian would push GM to sell off those businesses, moves that have been speculated about for some time anyway.