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KERKORIAN DUMPS GM
He sells off remaining stake, report says

December 1, 2006
BY JOE GUY COLLIER
FREE PRESS BUSINESS WRITER

Billionaire Kirk Kerkorian apparently sold his entire remaining stake in General Motors Corp. on Thursday, ending a drama that could have reshaped the global auto industry but concluded with the 89-year-old activist shareholder walking away with little or no profit.

The Wall Street Journal, citing a source close to the situation, reported Thursday night on its Web site that Kerkorian had sold his remaining 28 million shares, giving up all ownership of GM stock.

No Securities and Exchange Commission filings yet show the sale, but a note sent by a leading Wall Street investment firm also speculated that Kerkorian sold the rest of his GM stock.

Earlier in the day, Tracinda Corp., Kerkorian's investment firm, filed a document saying it had sold 14 million shares, bringing its GM stake to 28 million shares, or 4.95%.

Later in the day, a transaction involving 28 million shares of GM stock at $29.25 moved on the New York Stock Exchange, according to Merrill Lynch auto analyst John Murphy.

"It appears that Kerkorian may now be out of his entire GM position," Murphy wrote.

Kerkorian and his representative on the board, Jerry York, had become frustrated with GM management after alliance talks with Nissan Motor Co. and Renault SA fell through, the note said.

"The news of Kerkorian exiting his position is what we think the market feared most," Murphy wrote. "It now appears instead of becoming a more aggressive activist, he may be allocating his capital to other opportunities he believes have higher potential returns. However, we believe Kerkorian and York saw tremendous potential value in GM and therefore may be back at a more opportune time."

A GM spokesman said late Thursday that the company had no direct knowledge of a sale, but acknowledged that few stockholders had 28 million shares to sell.

Tracinda's announcement that it had sold 14 million shares for the second time in as many weeks -- cutting its stake by half in November -- left analysts speculating that Kerkorian, who once tried to take over Chrysler Corp., may be done trying to influence GM -- and might be getting out of the auto industry altogether.

The two stock sales filed with the SEC involve a combined $864 million in GM stock.

If Kerkorian sold the remaining 28 million shares to longtime partner Bank of America for $29.25 a share, as the Journal reported, that transaction was worth $819 million.

Combined, the sales would have generated about $1.68 billion -- roughly equal to Kerkorian's original investment of about $1.69 billion.

Even before the final sale was reported, several analysts speculated that Kerkorian was giving up on GM because of the failed effort to push the world's largest automaker into the successful alliance between Renault and Nissan.

"It's about control," said Kevin Tynan, an auto analyst for New York-based Argus Research Co. "That's what these huge positions are about."

Kerkorian likely is taking his money and moving it to companies where he can have more control, Tynan said. In addition to the GM stock sale, Tracinda announced plans last week to invest $825 million in MGM Mirage stock.

"He's not feeling all that influential" at GM, Tynan said. "There's plenty of other companies. ... There's plenty of places where you can be more influential."

Since spring 2005, Kerkorian had been buying up shares of GM stock and increasingly trying to exert his influence over the company. GM began alliance talks earlier this year with Renault and Nissan, both of which are run by Chief Executive Officer Carlos Ghosn, after Kerkorian and York contacted the companies.

When those talks fell through in October, York resigned from the GM board. He also shot off a letter questioning the company's future and calling the GM board complacent.

"Frankly, to get to the crux of the matter, I have not found an environment in the boardroom that is very receptive to probing much beyond the materials provided by management," York wrote.

GM stock closed Thursday at $29.23, down less than 1%. Stocks often decline after a major investor sells off shares because smaller investors follow what they believe is "smart money" getting out, Tynan said.

Kerkorian bought GM shares at an average price of $30.24, according to a Free Press analysis conducted this spring. This week's 14-million-share sale, expected to close today, was worth $28.75 per share. Last week, he sold at $33 a share.

The average sale price on the three transactions was a fraction over $30.06 per share -- a narrow loss on paper, before transaction costs and other factors.

Kerkorian's intentions had been murky throughout the day. A spokeswoman for Tracinda said Thursday no statement would be made beyond the SEC filing. GM also declined to comment.

"Clearly our focus has been and will continue to be on the turnaround" of the company, said GM spokesman Tony Cervone. GM lost $10.6 billion last year, but recently has shown operating profits.

When his stake in GM dropped below 5%, Kerkorian no longer was obligated to issue a filing to the SEC each time he buys or sells GM stock.

Peter Morici, a University of Maryland business professor who tracks the auto industry, said Thursday afternoon it was too early to tell what Kerkorian had in mind.

Kerkorian could have been reducing his ownership to work behind the scenes to change GM, Morici said, since Kerkorian's first route -- getting York on the board -- did not work.

Even in the afternoon, a proxy fight appeared unlikely, said Joe Phillippi, a principal with AutoTrends Consulting in Short Hills, N.J. He said he thought Kerkorian was just cashing out his investment.

GM has cut costs dramatically over the past year, but many investors and analysts will not be convinced of a true turnaround until they see new products catch on in the market, Phillippi said. The stock, in turn, could be stuck around $30 for a while.

"There's not much to drive the stock upward substantially," he said.

The stock sale is welcome news for GM management, Phillippi said. GM spent almost three months exploring a global alliance that never materialized. "It does remove a source of management distraction," he said.

If Kerkorian's sales keep pushing down GM's stock price, workers and retirees who also are shareholders likely will continue to feel the impact.

Alfred McLean, a 65-year-old hourly worker at GM's Tech Center in Warren, has 800 shares that he says now are in jeopardy.

"I'm not too happy about it because GM's stock has dropped," he said. "To me, as a little guy, that's a lot of money for me to lose. I think he's playing a game. He's driving it down and then will buy it back."

McLean said Kerkorian was not interested in the employees or the product, just making money.

Greg Nash, a former GM engineer in Pontiac, said Kerkorian is selling his shares because he simply doesn't see a return on his investment.

"And I don't blame him, actually," Nash said. "I'm not too fond of how GM is doing their daily business."

If this is the end of the line for Kerkorian and GM, it could also mark the last time the former boxer and fighter pilot tries to exert control over a Detroit automaker. He made an unsuccessful takeover bid for Chrysler Corp. in the 1990s.

"I don't see him turning up at Ford," Phillippi said.

Contact JOE GUY COLLIER at 313-222-6512 or