Detroit Free Press

DETROIT – Wednesday was a good one for General Motors Corp. and billionaire corporate raider Kirk Kerkorian.

Shares of GM posted their biggest gain in a month – the same day the Las Vegas casino mogul announced he soon will own a 7.2 percent stake in the carmaker and a day after GM announced the first steps of a highly anticipated restructuring.

GM shares had dipped to less than $28 a share following its $1.1-billion loss in the first quarter – its biggest quarterly dive in 13 years. But Wednesday, shares jumped 4.2 percent, or $1.29, to close at $32.02.

The bump came after Kerkorian’s Los Angeles-based investment arm, Tracinda Corp., put out a statement that its stake in the company had jumped from 3.9 percent, or 22 million shares, to about 7.2 percent, or 40.9 million shares.

In a public offer that ran from May 4 through Tuesday, Kerkorian had sought 28 million GM shares at $31 a piece for a 9 percent stake in the company.

But investors offered to sell only 18.9 million shares, according to a preliminary tally by Mellon Investor Services LLC, which is in charge of processing the transactions. Final results are expected to be announced in about a week.

If the initial count is correct, Kerkorian, 88, would become GM’s third-largest shareholder, behind No. 1 shareholder State Street Corp., which owns 17.6 percent of GM’s outstanding shares, and Capital Research and Management, with 14.7 percent, according to research by Bloomberg LP.

More important, the additional 18.9 million shares Kerkorian intends to purchase will cost him $586.7 million. But they are now worth $606 million because of the bump in price – a one- day profit of $19.3 million for Kerkorian.

And Kerkorian could have made a profit of about $28.6 million Wednesday if investors had agreed to sell him the full 28 million shares he wanted.

His initial proposal to investors of $31 a share seemed like a good one at the time, because GM shares were trading less than $28. But Kerkorian reached only 68 percent of his goal – a result that Himanshu Patel, an auto analyst with J.P. Morgan Chase & Co., writing in a note to investors Wednesday, called “somewhat surprising.”

In reality, the shortage of takers on Kerkorian’s offer might not be that shocking.

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Kerkorian’s offer essentially set a floor of $31 for the stock price between the date of the initial offer, May 4, and its expiration.

And GM shares traded at or above $31 a share for 15 days since Kerkorian’s initial offer, hitting $32.98 a share on May 20. So investors eager to get out of the risky business of holding GM stock could have sold their shares on the open market at a higher price than what Kerkorian was offering.

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At least one auto analyst viewed the smaller-than-expected percentage of takers on Kerkorian’s offer as a referendum on GM’s restructuring plan, which includes cutting 25,000 factory jobs through 2008, closing plants and other measures, such as developing more exciting products.

“Investors showed their support for the restructuring case … by tendering only 18.9 million out of the 28 million shares Tracinda sought to buy,” Brian Johnson, an auto analyst for Sanford C. Bernstein & Co. LLC wrote in a note to investors Wednesday.

“We believe that this indicates support level for GM stock at the $31 level and further upside for GM as it seeks to restructure.”

Johnson also says investors could be “underestimating the relative aggressiveness of the plan GM outlined” by GM CEO Rick Wagoner at the company’s annual meeting Tuesday.

Because Kerkorian’s offer came up short, Wall Street analysts have been speculating that he might make another tender offer for GM shares and raise his price.

A Tracinda spokeswoman would not comment on that possibility, but on June 1, the company put out a statement saying it would “not increase its tender offer price above $31 per share.”

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In the end, the big unknown for Detroiters and GM is what Kerkorian’s increasing ownership of the automaker means for the future.

Kerkorian and his insiders have insisted publicly and privately that he views his GM stock only as a passive investment. But hardened industry observers doubt that the man who tried to take over Chrysler Corp. in the 1990s will sit by as an idle observer. In fact, speculation that he will seek a board seat has been rampant.

“While we believe Tracinda will become a more active investor over time and seek a board seat. We do not expect any further news flow from Tracinda over the next two to three months,” Johnson said.

With so many factors in the air – such as GM’s ability to execute its plan and Kerkorian’s potential involvement – GM remains a risky investment, he said.

“Shorter term, we expect the stock to be volatile.”

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(c) 2005, Detroit Free Press.

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AP-NY-06-08-05 1956EDT