Kerkorian May Turn Up Heat on GM
Investor's Tracinda Plans
To Increase Stake to 9.9%,
Might Seek Spot on Board
By LEE HAWKINS JR.
Staff Reporter of THE WALL STREET JOURNAL
September 22, 2005;PageA3
Las Vegas investor Kirk Kerkorian, who once led a hostile takeover bid at the former Chrysler Corp., yesterday signaled he may turn up the pressure on ailing General Motors Corp.
In a filing yesterday with the Securities and Exchange Commission, the billionaire investor's Tracinda Corp. said it may speak to GM "concerning a possible representation on its board" and that it intends to increase its current 9.5% stake in GM to 9.9%.
The statement follows a Sept. 5 disclosure by Tracinda that it had increased its stake in GM to 9.5% from 7.2%. Tracinda agreed to acquire the shares in three separate transactions totaling about $460 million in that move.
Yesterday's filing marks the first public sign that Mr. Kerkorian and his lead consultant on the GM investment, former Chrysler and International Business Machines Corp. executive Jerome York, could be ready to press GM Chairman and Chief Executive Rick Wagoner for more aggressive action to stop the losses at GM's North American auto operations.
Mr. York, speaking yesterday at a Dow Jones conference for private-equity investors in New York, declined to discuss GM specifically. However, in general remarks about corporate turnarounds, Mr. York said, "You'd like to have the company enunciate a fairly detailed plan" so investors could then keep track of management's performance.
Until now, Tracinda has described Mr. Kerkorian as a "passive investor," and said his interests in GM were "long-term." But Mr. Kerkorian has a history of shaking up sleepy companies and pressuring them to sell valuable assets to finance cash payouts to shareholders.
"We were advised that they would be making this filing today," said GM spokeswoman Toni Simonetti, but she declined to elaborate.
Tracinda didn't give a time frame for when, or if, it might make a formal move to seek a board seat. A Tracinda spokeswoman declined to comment as to whether the company would still describe Mr. Kerkorian as "a passive investor." The company then offered a brief statement: "As the filing states, the shares were acquired for investment purposes and Tracinda does not have a present intent to acquire or influence control over the business of General Motors."
The move follows Tracinda's $31-a-share tender offer this spring for 28 million GM shares, representing an 8.8% stake, though it fell short of the goal. The offer effectively set a floor for GM's shares, but yesterday they fell below that level and finished down 38 cents to $30.70 in 4 p.m. New York Stock Exchange composite trading.
Some analysts say GM could unlock value for shareholders by selling parts of GMAC, the auto maker's profitable finance arm. GM has a huge burden for health care and pension obligations owed to active and retired United Auto Workers union members. Slashing that burden would help GM become more profitable, but so far company management has been reluctant to force a showdown with the UAW that could lead to a strike.
On Wall Street, Mr. Kerkorian's moves have puzzled investors, many of whom are critical of GM management for so far failing to clearly delineate a recovery plan. In order for Mr. Kerkorian to profit significantly from GM, he would need to force the company to take aggressive steps toward change, they say.
Brian Bruce, director and head of equity investments at PanAgora Asset Management, which manages $18 billion in institutional equity assets, said he is "not really sure" what Mr. Kerkorian is thinking. He said Mr. Kerkorian has to have one of two ideas: "Either it's that he'll buy a stake, rattle the cage, and get GM to buy him out some kind of way, or he must have some idea of some merger or divestiture happening." Mr. Bruce added, "We own some of the stock, but I don't like it."
Wall Street money managers cite GM's ability to sell cars and trucks in America as one of a number of near-term challenges, especially since GM's most important vehicle launch in the next several months is the debut of a new line of large sport-utility vehicles starting in January. Rising gasoline prices have depressed demand for large SUVs. GM also hasn't been able to wrest concessions from the United Auto Workers union, something management has named as a priority in recent meetings with analysts.
--Joseph B. White contributed to this article.
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