Given the state of General Motors Corp. (GM) these days, you'd think billionaire Kirk Kerkorian must be crazy to invest almost $1.6 billion in the auto maker. It's tough to fathom how he can make his money back any time soon. But after all the speculation that the investor's secret agenda was just to carve up the pieces of the company for cash payouts, it turns out he wants to make a profit the old-fashioned way: buying the stock cheap and pushing management to stage a comeback. "He is not going anywhere," says a source close to Kerkorian's Tracinda Corp. "He likes the GM guys and believes they are listening to him."
That sounds awfully friendly for an investor with a reputation for being such a hardballer. But at the moment, relations between Tracinda and GM are downright chummy. Kerkorian's top lieutenant, Jerome B. York, has accepted GM's invite to take a seat on the board. Kerkorian has bought back the 12 million shares of GM that he sold to get a tax break in December. And GM Chairman G. Richard Wagoner Jr. has put in motion some of the fix-it measures that York suggested in a speech a month ago.
Kerkorian and York are in a stronger position to influence management than most people realize. In a little-noticed move, Kerkorian got his top adviser on GM's board while retaining the right to buy and sell stock as he pleases -- a right usually denied GM board members. Just after York accepted the board seat, Tracinda filed with the Securities & Exchange Commission a short note saying that the former Chrysler Corp. (DCX) and IBM (IBM) chief financial officer works for Kerkorian only as a consultant and won't share insider information. To avoid conflict of interest -- and to pass muster with the SEC -- York won't advise Kerkorian on trading GM stock. "It's strange that the person who pays York is free to trade," says Maryann N. Keller, an auto-industry consultant. "That means Kirk can buy and sell as he wants."
Assuming that the SEC has no problem with the arrangement, the upshot is that York and Kerkorian would be more powerful as a duo with somewhat separate roles than they were before. York has access to the board and can make his case to other directors. Meanwhile, Kerkorian can boost his outside clout by purchasing more stock and even teaming up with other large shareholders. In the spirit of cooperation, GM agreed to the arrangement. Says long-time industry watcher and president of Short Hills (N.J.) consulting firm AutoTrends Inc. Joseph Phillippi: "Kerkorian makes his money when these guys get their [act] together and fix the company."
While GM is scrambling to get any kind of traction in the car market, count on York to comb through GM's financials in a search for operations that need to be dumped. In an interview in early January, York said GM needs to take an approach like Carlos Ghosn's at Nissan Motor Co. (NSANY): paring away -- either through sale or closure -- any businesses, brands, or operations that lose money, require too much cash to fix, or distract upper management. Says York: "I strongly believe that a company in need of a restructuring needs to whittle down to its core business."
What happens if Wagoner and York find plenty of other reasons to disagree? At this point, York can only try to get other board members to see things his way. He already watched the Feb. 6 deadline for nominating more board members or filing any other kind of shareholder resolution come and go. But sources say York has regular conversations with GM board members and has a long-standing relationship with director Kent Kresa, ex-chairman of Northrop Grumman Corp. (NOC).
That means if GM isn't making progress, York is in a position to get the board to take even tougher action. But don't expect him and Kerkorian to get hostile too soon. York told BusinessWeek last month that he wants to help fix an American industrial icon like GM. And although Kerkorian's mission is to make money, he has rarely become hostile and has never pushed a company into bankruptcy (which would, in this case, wipe out the value of his shares). He just wants to see GM make it back from the brink, and make money for him.
By David Welch, with Ronald Grover in Los Angeles