Investor puts spoke in GM's wheels

DETROIT - Billionaire investor Kirk Kerkorian on Friday shelved plans to raise his stake in General Motors and said his aide had stepped down from the car-maker's board two days after GM nixed a three-way alliance with Renault-Nissan.

The action by Kerkorian, an activist investor who holds a 9.9 per cent stake in GM, added a new note of uncertainty to the outlook for the No 1 automaker at a crucial moment in its turnaround, analysts said.

Former Chrysler executive Jerry York, who became a GM director in February, tendered his resignation from the company's 12-member board, the investment firm representing Kerkorian, Tracinda Corp, said in a filing with the US Securities and Exchange Commission.

GM shares, which had gained over 70 per cent since January when Kerkorian stepped up pressure on GM for a faster turnaround, dropped 6 per cent to US$30.82.

Option volume surged with more than twice as many puts as calls trading as investors hedged against or looked to profit from the risk of a further decline in GM stock.

Tracinda said in its filing that it had abandoned plans to purchase 12 million additional GM shares that would have raised its stake in the car-maker to near 12 per cent, and analysts questioned whether Kerkorian would opt to sell the 56 million shares he now owns.

Sidestepping GM management, Kerkorian brokered the partnership talks with Renault and Nissan, and said after the talks broke off that a tie-up could have produced "substantial synergies and cost savings" for GM.

GM said the decision to end the alliance talks, which was announced on Wednesday, had the unanimous support of its board, including York, who also works for Tracinda.

But Tracinda's Friday filing made clear that Kerkorian still challenged that move by GM's board, which came before an October 15 deadline initially set as a review period with Renault and Nissan chief Carlos Ghosn.

"General Motors abruptly announced the termination of discussions regarding its proposed alliance with Renault and Nissan prior to the expiration of the time period originally established for the initial review of the alliance and without the General Motors board of directors obtaining an independent review of the alliance," Tracinda said.

Beverly Hills, California-based Tracinda said York had provided the company with a letter detailing the reasons for his resignation, which Tracinda did not make public.

Analysts have credited Kerkorian's stake in the car-maker as a catalyst for the stock's performance.

"If you are investing in GM thinking that Tracinda is going to be an agent of change, this is not what you want to see," said Phil Orlando, chief portfolio manager of Federated Investors in New York.

Fitch Ratings managing director Mark Oline said the action by Tracinda "potentially frees up Jerry York and Kirk Kerkorian to agitate more from the outside and free them from any potential restrictions associated with being a board member".

Some analysts agreed that Kerkorian could be looking at other ways to influence GM's turnaround strategy after criticisng GM chief executive Rick Wagoner and other managers earlier this year for not moving fast enough to pull the company from crisis.

"That means we are either lining up for a proxy fight, or he is going to sell the rest of his 56 million shares," one analyst said.

- REUTERS