Tracinda Offers to Buy 28M Shares of GM

Billionaire Kirk Kerkorian (search) swooped on General Motors Corp. (GM) on Wednesday, offering to more than double his stake to 8.8 percent in a move that raised investor confidence in America's industrial backbone and drove U.S. stocks broadly higher.

The unexpected announcement by Kerkorian's Tracinda Corp. (search), which could pressure GM's management into speeding up a restructuring, sent the automaker's shares soaring almost 16 percent from their lowest levels in more than a decade. Shares in rival Ford Motor Co. (F) and U.S. auto parts companies also climbed.

Tracinda said it would spend up to $868 million and buy as many as 28 million shares of the world's largest automaker.

"Kerkorian is saying the world is not coming to an end at General Motors — a stroke like this gives investors and the market a lot of confidence," said Craig Hodges, fund manager at Hodges Capital Management.

GM posted a $1.1 billion loss last month, its worst result since it skirted bankruptcy in 1992. The loss sent its shares into a tailspin to the lowest levels since that same year, after adjusting for the 2000 spinoff of Delphi Corp. (DPH).

GM continues to lose vital U.S. market share to foreign rivals and has been hit by spiraling costs for employee health care and raw materials to build vehicles, causing ratings agencies to warn they could downgrade the automaker's debt to "junk" status at any time.

The $31-a-share offer price by Kerkorian, an 87-year-old Las Vegas casino mogul, includes the regular quarterly dividend of 50 cents per share. The price represents about a 13.4 percent premium over GM shares' closing price Tuesday on the New York Stock Exchange of $27.77, Tracinda said.

Tracinda, the majority owner of casino and hotel operator MGM Mirage Inc. (MGM), said it already owns 22 million GM shares. After the offer, Tracinda would own up to 50 million GM shares, or about 8.8 percent of the outstanding stock.

GM spokeswoman Toni Simonetti said the company had no immediate comment on the tender offer. Tracinda had no immediate comment on when it acquired the 22 million GM shares, or what price it paid.

GM shares rose $5.03 or 18.11 percent, to settle at $32.80 on the New York Stock Exchange, the biggest single day jump in the automaker's shares in more than 24 years. Ford's shares rose 7.29 percent to $10.16, while DaimlerChrysler (DCX) shares ended higher 4.20 percent at $40.95.

GM's bonds also rallied on the news. The bonds now pay a yield 6.17 percentage points higher than Treasuries, a risk premium that is 0.48 percentage point lower than on Tuesday, according to MarketAxess.

"There is no doubt in our mind that Tracinda's interest is not in the auto business, but rather in unlocking value embedded in non-core businesses," Merrill Lynch analyst John Casesa said in a research note.

Following the spike in GM shares, the stock market valued GM at about $18.1 billion, less than many smaller companies such as Gap Inc. (GPS) and Avon Products Inc. (AVP).

The non-automotive assets in GM's financial services unit, such as its commercial and home mortgage units, are worth as much as $25 a share, Casesa said. GM has said that it is in talks to sell off a majority of its commercial mortgage business.

But GM's core automotive unit is worth much less, partly due to the constraints in its union contracts and the high costs of its guaranteed pension and health care plans for 1.1 million current workers and retirees.

GM assessed its book value at $49.06 per share as of the end of 2004, according to a securities filing last month. More recently, several analysts put the company's book value at $45.27 per share.

Kerkorian was the largest investor in automaker Chrysler before its link-up with Germany's Daimler-Benz in 1998. He is currently appealing a court ruling that dismissed his $1 billion lawsuit over the handling of the deal that created DaimlerChrysler, the world's fifth-largest automaker.

Kerkorian's hand could pressure GM and the United Auto Workers (search) union to cut jobs and close plants to make the company more competitive, said David Cole, director of the Center for Automotive Research in Ann Arbor, Michigan.

"I would be really, really concerned, particularly if I were the union," Cole said. Paul Krell, chief spokesman for the traditionally militant UAW, said it had no comment.

In April, GM Chairman and Chief Executive Rick Wagoner (search) took day-to-day control of GM's North American automotive operations from two deputies, a move analysts said puts his job on the line as he tries to turn around the money-losing business.

Kerkorian's investment is the biggest outside threat to GM management since billionaire financier Carl Icahn said in August 2000, that he would buy a stake in GM, presumably to force the automaker to sell off its stake in satellite television operator DirecTV.

Icahn, who has rattled board rooms for years by taking large chunks of companies, never took a large stake in GM. But the automaker agreed to sell off DirecTV parent Hughes Corp. two months later to competitor EchoStar Communications Corp. (DISH). After that deal fell apart, GM sold Hughes to Rupert Murdoch's News Corp. (NWS) in 2003.