Wednesday, July 19, 2006

Tracinda back in black on GM stake

Thursday, July 13, 2006
Tracinda back in black on GM stake
Firm's stock rose 7.9%, boosting Kerkorian's shares' value by $122M.
Jeff Green / Bloomberg News

Billionaire Kirk Kerkorian's Tracinda Corp. 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.

Last Friday, GM's board authorized CEO Rick Wagoner to study the proposal.

Tracinda, 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.

Ghosn, who is also chief executive of Renault, expects to join GM's board if the three automakers form an alliance, according to two people familiar with his plans.

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 GM. "He's trying to force Wagoner to move quickly and act more like Carlos Ghosn in order to save his job."

Kerkorian, 89, 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.

At Wednesday's close of $29.62 in New York Stock Exchange composite trading, Kerkorian's stake has gained $139 million to about $1.66 billion. GM shares rose 12 cents Wednesday.

The shares closed above $27.14 on June 30 and in each of the seven trading days following. The price topped $27.14 only five other times between October and June 30.

GM is Dow's biggest gainer

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."

Analyst: Proposal smells fishy

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, Tenn.-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.

Insuring GM debt is harder

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.

Kerkorian bets big

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. "But you never bet against Kirk."

Bloomberg News reporter Kae Inoue contributed to this report.

© Copyright 2006 The Detroit News. All rights reserved.


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