The news is all about Kirk Kerkorian as he dumped 14 million shares of GM - his second such dumping in recent weeks. What's interesting is that most of the media is reporting that he "slashed his holdings by a third," however, other sources are saying that Kerkorian is completely out - meaning that he has dumped 100% of his shares. A regulatory filing by Kerkorian's investment firm Tracinda noted that it was selling 14 million shares, leaving it with 28 million shares, or slightly less than a 5% stake. The Wall Street Journal, however, quoted an unnamed source as saying that Tracinda dumped the remaining 28 million shares later in the same day. Either way, the correct view is summed up perfectly here by Mr. Kerkorian's key man on the GM board, Jerry York.
The move brought criticism from Kerkorian and the resignation of Kerkorian adviser, Jerry York, from the GM board. York , in a letter to GM Chairman and CEO Rick Wagoner, said he had, "grave reservations concerning the ability of the company's current business model to successfully compete with those of Asian producers."
Though GM shares gained shortly thereafter, S&P stepped in with a "sell" recommendation on GM stock. The analyst's report is chilling:
Cuts to 2 STARS (sell) from 3 STARS (hold): GM's sale of 51% interest in the GMAC finance unit concerns us. Expected $14 billion net cash proceeds should enhance liquidity. But since we expect GMAC to remain quite profitable, we see transaction as dilutive to earnings per share (EPS,) and we are lowering our 2007 EPS estimate by $1.02 to $3.73. Separately, we think the reduction of the billionaire investor Kerkorian's GM stake to below 5% simultaneously reduces potential selling pressure and eliminates potential upward catalyst. Looking ahead, we see execution risk in GM's restructuring. We are lowering our target price by $9 to $28, 7.5 times our 2007 estimate, at the low end of the historical range.
I said here (in July) that GM's restructuring was not the reason for the "buy" recommendation, and could not possiby have driven such insane euphoria. That was a no-brainer at the time, and apparently, others agree. The debased folks over at at Merrill Lynch should be ashamed of themselves.
Got GM short?
