- The Washington Times - Wednesday, May 4, 2005

DETROIT (AP) — Investors in troubled General Motors Corp. were betting yesterday that 87-year-old billionaire Kirk Kerkorian’s surprise proposal to acquire a large stake in the company could be a catalyst for better times at the world’s largest automaker.

GM shares soared more than 18 percent yesterday after Mr. Kerkorian’s Tracinda Corp. offered to pay almost $870 million for a nearly 5 percent stake. That would boost Tracinda’s holdings to about 9 percent and make Mr. Kerkorian one of GM’s largest shareholders.

GM shares fell to a 10-year low in April after the company reported a $1.1 billion loss for the first quarter. Its sales have slumped in recent months, including those of its most profitable sport utility vehicles, as gasoline prices marched higher. And while GM executives complain about huge increases in medical insurance costs, the United Auto Workers union has said it’s not interested in reopening contract talks before 2007 to address those expenses.

Tracinda officials said Mr. Kerkorian would have no comment beyond the statement released early yesterday saying the proposed purchase was for investment purposes only. But his motives prompted speculation on a variety of scenarios, including that he might desire a controlling stake in the automaker.

“His history is that he’s never been a passive investor in any of the companies he’s gotten involved with,” said Burnham Securities analyst David Healy.

Beverly Hills, Calif.-based Tracinda is the majority owner of casino and hotel operator MGM Mirage Inc. It was the largest shareholder in Chrysler Corp. when the automaker merged with Daimler-Benz AG in 1998.

Mr. Kerkorian, whose net worth is estimated at $8.9 billion by Forbes, is Tracinda’s sole shareholder.

Tracinda said it was willing to buy up to 28 million GM shares for $31 each, in cash, an 11.6 percent premium over GM’s closing stock price Tuesday. But yesterday’s run-up pushed GM’s share price above that level. The shares jumped $5.03 to close at $32.80 yesterday on the New York Stock Exchange.

The automaker said Tuesday its U.S. sales fell 7.7 percent in April, another disappointing showing. So far this year, GM’s U.S. sales are off nearly 5 percent.

A big concern for investors is the potential that rating agencies might downgrade GM’s debt to junk status, which would increase the company’s future borrowing costs. Standard & Poor’s says GM’s unsecured debt is roughly $200 billion.

In a research note yesterday, Merrill Lynch analyst John Casesa changed his rating on GM stock from sell to neutral, “given Kerkorian’s successful track record of unlocking shareholder value.”

“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, including GMAC’s non-auto subsidiaries,” said Mr. Casesa, referring to GM’s highly profitable financing arm.

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