This morning Kirk Kerkorian made a tender offer of $31 for 5% (28 million shares) of General Motors (GM) stock. Does he know something no one else does? Is GM undervalued here?
Don’t be silly. GM is still headed to its ultimate target which is zero. Oh I suppose if GM can manage to package off it pension plan debt and sell it then perhaps it can survive if it also gets its act together on producing decent cars that people actually want but I do not rate those odds very high. Still GM is not headed to zero tomorrow and that is what this nonsense is all about.
Given that GM trades about 7-10 million shares a day it is clear that KK easily could have acquired 5% of GM at prices far below $31 a share, so what gives? Here goes: KK currently owns 22 million shares. This announcement of seeking to buy 5% of GM is just BS. Profitable BS but still BS. It will not affect (or should not anyway) GM’s credit rating nor will it affect GM’s ultimate target price of zero dollars a share. But there is a lot of time between here and zero.
What would Warren Buffett have done if he wanted to buy GM? He would have been patient with it, accumulated all he wanted and THEN told everyone about it. Clearly KK did not want to buy GM cheaply. All he wanted to do was drive up the price of the shares that he bought.
Let’s see …
The KK started gathering his stock after the March break and said his cost basis was $26.33 per share. 22 million * $6.50 is about $143 million plus or minus a few million profit. That is not bad for a stock that will ultimately be worthless.
One more thing…
It seems that just yesterday “a very large holder” of the stock pulled the borrow availability last night. Gee who might have done that? Did that “same someone” buy some calls yesterday as well?
Speaking of options, a mere couple hundred thousand options on GM traded today. I am sure KK could have sold some deep ITM leap covered calls today if he wanted to, booking the gain and holding on to the common for dividends. Then again, perhaps he unloaded the whole kit and caboodle. Perhaps he ups his offer tomorrow. What’s GM going to do, sell him the stock they “funded” their pension plan with at $50 a share for $31 a share? Probably not. Perhaps he is hoping for a sucker offer from someone else. Wouldn’t that be something if someone offered $38 a share and KK said here you go, I take it here’s my 22 million shares and I’ll get another 6 million to complete the deal.
So there you have it. No one yet knows his ultimate motive, but we do know that he had a well executed plan that seems to have worked to perfection. Shares were pulled, an offer to buy was made at an absurd price, and shorts were scrambling for cover as the momo buyers poured, so GM closed at $32.80 up a mere 18% and almost $2 over his offer of $31.
Let’s step back from the trade and see what we can see. GM’s total consolidated debt was $301 billion on December 31, 2004. Canada’s entire Federal Debt is about $363 billion. GM makes crappy cars, has a horribly under funded pension plan, has $2,000 more expenses per car (because of benefit obligations) than does Toyota who makes better cars. IMO that is all one needs to know to know where GM is headed. In the meantime a well executed short squeeze just made Kirk Kerkorian about $140 million.
Say what you want but today’s action has nothing with wanting to own GM at $31 a share. Was this blatant manipulation? Is it any worse than anything else that goes on? Should the SEC investigate this? I am open to viewpoints so respond away.
Will this be the start of a trend? Accumulate 5% of total garbage companies then offer to buy 5% more at absurd prices? It worked once. How long before someone else tries it? Maybe someone can get GOOG (not garbage but ridiculously overpriced) to $500 a share by offering to buy 5% of the company for $350 a share. Why not?
Mike Shedlock / Mish/