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From the Detroit Free Press:

Coincidence? Offer to expire when GM shareholders meet

May 11, 2005


Now it really gets fascinating for General Motors Corp., Wall Street and Detroit.

Billionaire Kirk Kerkorian made it official this week that he wants to buy 28 million shares of GM stock at $31 share, and the effects of his offer were evident Tuesday as GM shares finished up, even while the stock market took a big dip.

Kerkorian's offer has, in effect, created a floor on GM stock of $31, say financial experts, and for the next few months it's unlikely GM shares will dip much below that. Before last week, GM stock had fallen to $25 a share, its worst mark since 1991.

The Dow fell almost 100 points on Tuesday -- while GM finished up 20 cents to close at $31.53. Driving Wall Street down, ironically, were fears that several investment firms lost big money betting GM shares would keep falling -- which they were doing until Kerkorian bet the other way.

Even more interestingly, Kerkorian's tender offer sets up the potential for a tense, raucous GM annual shareholder meeting. That's because Kerkorian's offer is set to expire June 7, the same day of GM's normally quiet annual meeting in Wilmington, Del.

Kerkorian's attorney, Terry Christensen, said it was unintentional that the offer expired that day, citing the fact the Securities and Exchange Commission requires tender offers to run at least 20 business days.

"It was pure math that took us to June 7," Christensen said.

He added Kerkorian's private investment firm, Tracinda Corp., has not yet decided if it will send someone to that public meeting.

Others, on Wall Street and in Detroit, doubted there was anything accidental about the timing.

"This isn't a coincidence. I'm sure he timed the whole thing to that meeting. That annual meeting is the day, the best day, for shareholders to show up and put a lot of pressure publicly on GM," said Peter Henning, a former SEC lawyer who teaches corporate law at Wayne State University.

"There are now investors on Wall Street who are going to go along for the ride with Kerkorian and they will now ask GM management, 'What the heck are you doing to turn this around?' "

Henning noted the offer is taking place at a time that GM is not scheduled to issue any quarterly financial reports, so there will be "no shocks that will undercut him or the $31 floor he's set on the stock."

Kerkorian, a casino mogul who failed in an effort to take over Chrysler Corp. and later lost a $1-billion lawsuit against DaimlerChrysler AG, officially launched his tender offer Monday. He owns 22 million GM shares, or 3.9 percent. If he bought the 28 million he proposes to, he'd own 8.8 percent of GM, making him GM's third-largest shareholder.

Under SEC rules, holders of GM stock need to contact Tracinda, typically via a broker, if they want to sell their shares to him at the stated $31 offering price.

The rules governing a tender offer say Kerkorian must pay the same price to all investors, big or small. Also, investors have until June 7 to decide whether they want to sell.

Now that the offer is official, a host of 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. Christensen said Kerkorian would rather not expand his offer, but instead "do a pro-rata takedown," which means he could just take a percentage of the shares if more than 28 million are offered.

He could also raise his offer from $31 a share if not enough shares are offered to him.

Kerkorian can also extend the offer for 20 more business days. He could also pull out at anytime.

The GM-Kerkorian marriage is also interesting because Kerkorian is going the exact opposite direction that most of Wall Street was going prior to last week, especially hedge funds, which were expecting to make money if the stock price continued to drop, using a tactic known as "short-selling." That means selling in advance a stock you have yet to buy.

Hedge funds are pooled investments, but they are largely unregulated and put their money in riskier ventures.

Among these professional risk-takers, the conventional wisdom on GM had been to "short the stock, long the bonds," which basically means take a short-term negative view of GM, but buy the bonds to protect your investment long-term. Bonds are backed by the actual GM cars and trucks and would still have value in the unlikely event that GM fell into Chapter 11 bankruptcy.
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