Kirk Kerkorian Dumps GM: Wagoner Wins, Shareholders Lose

Friday's exit by Kirk Kerkorian from GM stock should really worry and frustrate shareholders. It isn't often that an investor of such pedigree becomes so disenchanted with management that he simply walks away from his investment.

I was particularly struck by a quote in one of the Wall Street Journal's articles. It had GM director Armando Codina asking,

"Who does this guy from Las Vegas think he is, telling us what to do?"

This is simply incredible. Perhaps a more important question is,

"Who does Armando Codina think he is, and what does he think he's accomplished as a GM director to create value for the shareholders he represents?"

As the nearby Yahoo-sourced five-year price chart for GM and the S&P500 shows (click on the chart to view a larger version), GM was going nowhere for years before Kerkorian showed an interest in the firm. The only significant uptick the company's stock has shown was after the billionaire showed signs of sustained interest in contributing to GM's long-term "turnaround."

If I were a GM shareholder, I'd be bolting too, now. The stock was down significantly as Kerkorian pulled the last of his money out of the troubled auto maker. This six-month price chart shows how the stock lost twenty percentage points of gain in November, ending the month even with the index for its six-month performance.

To answer Codina's question, though, Kerkorian, and his sometime-lieutenant, Jerry York, significantly contributed to the rescue of Chrysler by restructuring it and selling it to Daimler-Benz, profiting roughly $3B in the process. So, just on past performance, one would tend to bet on Kerkorian over Wagoner and his board.

Over the last two years, the company's stock price has behaved like a roller coaster. Rather than listen to York, who was given a seat on the GM board, and Kerkorian, Wagoner played a game of "chicken" with the savvy investor. Now, the shareholders have lost. An investor with a legendary touch for making money, and a genuine interest in the company, and its sector, is gone.

To me, Kerkorian has behaved as a sort of modern-day J.P. Morgan. I mean that in the best sense, as a compliment. He has seen industry restructuring potential where the current CEOs have seen only discomforting change. By considering broad-scale integration of GM and Nissan/Renault, Kerkorian offered shareholders a chance to have a stake in an auto maker which would have had the management talent and market share size to survive, and maybe prosper, in a long-term slugging match with Toyota.

Now, all shareholders have is Wagoner's tired, conventional attempts to stave off disaster. Last week, ironically, the company completed the sale of its controlling interest in its financing arm, GMAC, thus selling the last of the family jewels. With this cash, and the loss of the continuing profit stream from the finance unit, GM has more than mortgaged its future- it simply sold it to for continued short-term survival.

According to various media pundits, Kerkorian may return when GM has suffered sufficient losses for the directors to come to their collective senses. But, given their rebuff of York's suggestions this past fall, one wonders if there will be enough time and money left, whenever that moment comes, for even Kerkorian & Co. to wring value out of what will be a then much-weakened GM.

For now, though, Rick Wagoner is in possession of the field, having seen off both Carlos Ghosn's and Kirk Kerkorian's attempts to help GM shareholders survive the next few years of difficulty.