Markets Climb on Kerkorian's GM Offer
Wednesday, May 4, 2005; 4:39 PM
What's good for General Motors is still good for Wall Street.
The market rallied behind GM today after financeer Kirk Kerkorian made an offer to buy almost 9 percent of Detroit's biggest and most troubled vehicle maker.
GM stock scored its biggest gain in years, jumping $5.02 to $32.80 a share. The day's biggest winner among the 30 stocks in the Dow Jones industrial average, GM itself contributed 37 points to the Dow's 128-point gain for the day.
It was the fourth straight day of gains for the Dow, which closed at 10,384.64 -- up more than 300 points since that rally began.
The Standard & Poor's 500 stock index rose more than 14 points to 1,175.65. The Nasdaq Stock Market composite index was up 29 points to 1,962.23.
Shares of Ford and Daimler Chrysler rose along with those of GM, which until today was "the dog of the Dow" -- down more than 30 percent this year, the worst performing stock in the index.
Kerkorian's bid for GM, structured to get the most possible attention, signaled that the scavengers have looked closely at the company and decided that it's probably worth more than Wall Street has been valuing it at.
Kerkorian offered to buy up to 28 million shares of GM for $31 a share -- a little over $3 a share more than the stock was trading for yesterday. Instead of simply buying the stock on the open market, Kerkorian served notice he will make a formal tender offer for the stock, which will allow any or all shareholders to sell him at least a portion of their holdings.
Known more as an opportunist investor and corporate raider than as a manager, Kerkorian was welcomed by GM shareholders because he is expected to provoke GM to get off the dime and do something dramatic to reverse its fortunes.
Although U.S. auto sales jumped in April, sales were down at GM, which is heavily dependent on sales of big pickups and sport utility vehicles, both of which are being shunned by buyers because of their notoriously high fuel consumption.
Kerkorian made a similar move on Chrysler a decade ago, failing in his attempt to buy the company but ultimately pushing it into what has proved to be a difficult marriage with Daimler.
Although the odds on Kerkorian taking over GM are considered slim, the mere threat was hailed by analysts. They said it gives GM a cudgel to wave at union leaders in hope of getting them to agree to cut health care costs, which now add more than $1,000 to the price of every GM car.
While Kerkorian's offer gave some relief to GM shareholders, it did not address GM's fundamental problem -- customers are deserting its family brands in favor of Japanese imports which buyers consider to be better, more reliable, more desirable cars.