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Kerkorian Looms Over GM

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  • Kerkorian Looms Over GM


    Originally published Saturday, June 04, 2005


    He won't be there, but corporate raider Kirk Kerkorian and his offer
    to more than double his stake in General Motors Corp. will hang over
    the proceedings at the automaker's annual shareholders meeting

    The stunning bid by the billionaire investor, who has rattled
    corporate boardrooms in the past by forcing companies to restructure
    or sell off assets, to raise his stake in GM to nearly 9% has raised
    expectations that this year's shareholder meeting will be more than
    the usual fare of speeches, quick votes and free sandwiches.

    The Las Vegas casino mogul's offer in May to buy as many as 28
    million GM shares at $31 each through his investment firm Tracinda
    Corp. gives shareholders upset by the decade-low stock price a chance
    to sell out. Kerkorian's bid expires the same day as the shareholder
    meeting, scheduled to be held in Wilmington, Del., where the Detroit
    automaker is incorporated.

    A lawyer for Kerkorian has said his client intends to be a passive
    investor who will own GM shares solely for investment purposes and
    not to force major changes at the automaker. But Kerkorian's own
    history, including his attempted takeover of the former Chrysler
    Corp. in the 1990s, suggests otherwise.

    Some corporations have measures that thwart takeover attempts such as
    a so-called poison pill that is triggered automatically to make a
    company's stock less attractive when an unwanted buyer emerges. But
    GM's corporate bylaws lack many common corporate defensive measures
    that would prevent Kerkorian from forcing his handpicked slate of
    candidates onto the company's board of directors, automotive analyst
    Brian Johnson of investment firm Sanford Bernstein said in a recent

    "GM's bylaws are surprisingly shareholder-friendly, without common
    takeover defenses," Johnson wrote. "Tracinda could nominate his own
    slate of directors for election in June 2006 or earlier by filing
    written consents of a simple majority of shareholders. Given the
    concentration of GM ownership, only about two dozen institutions
    would be needed to unseat GM's board at any point in time."

    Tracinda said this week that it won't increase its offer of $31 per
    share, even as the stock trades above the proposed price. But a host
    of other scenarios could play out.

    For example, more than 28 million shares could be offered to
    Kerkorian, who could opt to expand his offer and take more of GM. He
    could also extend the offer for 20 more business days if not enough
    shares are tendered.

    GM Chairman and CEO Rick Wagoner faces troubles besides Kerkorian.
    Earlier this week, GM reported a 12.6% drop in May U.S. vehicle
    sales, forcing the automaker to cut third-quarter vehicle production
    in North America by 10%, or 100,000 cars and trucks, to deal with
    high inventories.

    GM officials said they expect a big turnout by the national media
    eager at to cover the problems facing one of America's largest
    employers and biggest contributors to the national economy.

    Among current shareholders who rode the more than 30% fall in GM
    share price in the last year, some might be tempted to support
    several shareholder proposals to be voted on at the meeting, said
    John Lauve, a former GM manager.

    Lauve, who retired to Holly after 30 years with GM, cosponsored a
    proposal that would require only a majority of shareholders to vote
    in favor of any item for it to be considered by the company. He also
    sent his own slate of 12 alternatives for the GM board to investment
    firms and mutual funds that own GM shares.

    "Their record of failure is the most convincing reason for change,"
    Lauve said of the current GM board.

    Lauve, whose father was part of the creative team under famed
    designer Harley Earl, estimates he has lost $40,000 to $50,000 from
    GM's falling share price since he retired in 1999.

    "I've worked 30 years for this company. My father worked for it
    before I did. I cannot stand by and see this great company destroyed
    by incompetent leadership. What happened to Kmart?" he asked,
    referring to the Troy discount retailer that went bankrupt in 2002
    and later merged with Sears Holdings Corp.

    The GM board has urged investors to reject Lauve's and other
    shareholder proposals. Lauve's proposed change is "misleading and
    unnecessary" because items subject to a stockholder vote already
    require only a majority vote to be approved, GM said in proxy
    statement sent to shareholders.

    But the California Public Employees' Retirement System (Calpers), a
    pension fund for public service workers and the holder of about
    486,000 GM shares, has said it will vote for four of the five
    shareholder proposals, including Lauve's, over the wishes of the GM
    board of directors. Calpers, which often voices support of corporate
    reform, said on its Web site that Lauve's proposal is in line with
    its own backing of greater accountability for corporate board

    Another shareholder proposal cited a report by the Corporate Library,
    a pro-investor research firm that gave GM's board of directors a "C"
    grade for effectiveness.

    The Corporate Library, based in Portland, Maine, concluded that too
    many GM directors are busy working as chief executives of other
    companies or serve on too many corporate boards to be effective in
    leading the automaker. Philip Laskawy, a former partner at accounting
    firm Ernst & Young, serves on six corporate boards, while former
    Compaq Computer chief executive Eckhard Pfeiffer and Kent Kresa, the
    former chief executive of defense firm Northrop Grumman Corp., both
    serve on five boards, including GM, the Corporate Library said.

    Even with Kerkorian's intentions foremost in the minds of investors,
    GM's meeting could be "a little like most Super Bowls," said David
    Sowerby, a senior portfolio manager with the $70-billion investment
    firm and mutual fund company Loomis Sayles & Co. in Bloomfield Hills.

    "You have a lot of expectations heading in. I would be surprised to
    see anything major for the critical issues facing the company,"
    Sowerby said, listing GM's rising health care and pension fund costs
    as top concerns.

    Even if Kerkorian and his advisers remain silent Tuesday, his looming
    shadow over GM will make some investors consider buying GM's stock at
    the current low price, Sowerby said. "It certainly makes you look
    harder," he said.

    "It's on my screen, but I haven't felt a strong urge to buy the