Kerkorian Deals Vegas In, Cuts GM Off

The billionaire offered to buy $825 million in MGM Mirage shares at the same time he's said to be selling off shares of the Detroit giant

In the end, it appears that billionaire Kirk Kerkorian has decided upping his investments in Las Vegas is a better gamble than trying to fix General Motors (GM).

On the same day, Nov. 22, that Kerkorian's company, Tracinda, said it is tendering an offer to buy $825 million in MGM Mirage (MGM) shares, it also said it is selling off a chunk of its GM stock, reducing its stake in the automaker from 9.9% to 7.4%. The move, say analysts, signals that the dissident shareholder will likely not pursue a proxy battle with GM, and will continue to dial down the firm's investment in the struggling automaker.

News of Kerkorian's sale sent GM shares plummeting nearly 5%, closing at $31.09 on the New York Stock Exchange, on Nov. 22. GM's shares had fallen about 10% from Nov. 17 through Nov. 22 as Wall Street analysts expressed doubts about the speed at which GM can achieve sustained profitability and recover market share.

Discussions and Breakdowns

Kerkorian's move on MGM would increase his holding in the casino/hotel company to almost 62%. In a regulatory filing, Tracinda said it had agreed on Monday to sell 14 million GM common shares in a private transaction for $33 per share.

Representatives of Tracinda and GM could not immediately be reached for comment. Kerkorian has been a catalyst behind a run-up in GM's shares this year, to a high of $36.56 in October from a 52-week low of $18.33 at the end of last year.

Kerkorian and his advisor, Jerry York, have been pushing GM to speed restructuring and cost cutting. But York, a critic of GM chairman and CEO G. Richard Wagoner Jr., also sparked discussions between GM and Renault-Nissan that would have created an extensive alliance among the three companies. Those talks broke down in October. Shortly after, York resigned his seat on GM's board. The 45-day period after York's resignation in which Tracinda could not sell GM shares passed this week.

After the alliance discussion driven by York broke down, the Tracinda advisor, as well as some Renault executives, criticized GM for never taking the proposal seriously. That acrimony spurred some to think Tracinda would launch a proxy battle.

"Going to Go Quietly"

The stock sale "signals that he pretty much is going to go quietly into the night," Kevin Reale, an automotive analyst at AMR Research, told Reuters on Nov. 22. Kerkorian, 89, responded to the end of alliance discussions by canceling plans to buy 12 million more shares in GM, something he had said he might do when the potential alliance was still on the table.

Besides the alliance with Renault-Nissan, York also pushed for such measures as selling the Hummer brand and business, and closing Saab and at least one other underperforming GM brand, such as Buick or Pontiac. GM executives have resisted York's encroachment on strategy and management issues.

Kerkorian first began amassing what became a $1.7 billion stake in GM in April, 2005. He paid an average of just over $30 for the shares he acquired. Tracinda sold shares once during that period. In December, Kerkorian sold 12 million shares for $252 million to show a loss for tax purposes and then bought back the same number in January for $263 million.