Just Who is Kirk Kerkorian and Why Does He Want to Buy GM Stock?

Kirk Kerkorian has a cool name and a lot of money, but he may be just a little off his rocker, wanting to take a position in General Motors. This financier wants to buy about 9% of GM’s outstanding stock, representing about 28 million shares for $31 each. But right now, GM’s prospects are not particularly rosy.

Without question, Kerkor “Kirk” Kerkorian is one formidable individual. He was born in 1917 in California, and all he wanted to do was fly airplanes. As a young man, he lied about his schooling and entered the Morton Air Academy where he became a flight instructor. During World War II, he flew daredevil missions across the Atlantic for the Royal Air Force, delivering unarmed Canadian bombers to European bases for $1,000 a trip. Even as a military man he was an entrepreneur. After the war, he started and sold many businesses, and eventually became one of the most successful business titans in Las Vegas. He is now one of the world’s richest people.

Only recently, Kirk Kerkorian tried to buy Chrysler Corp., but the company wasn’t interested in selling it to him. They eventually sold out in a “friendly” deal to the Germans, and now Mr. Kerkorian has set his sights on GM. The argument being made is that, with a large equity position in the company, Mr. Kerkorian can force GM’s board of directors to consider selling off or reorganizing the company’s more profitable divisions like GM Acceptance Corp.

Everyone knows that GM is losing money making cars in North America and there is a lot of bad news already priced into the stock. If Mr. Kerkorian is trying to buy low and sell high, my best guess is that he is making a mistake. This deal might turn out to be a case of buying low and selling lower.

There is no question that GM makes some good cars and trucks, but it doesn’t make very many great cars and trucks. Just look around your own neighborhood. How many Honda Accords or Toyota Camrys do you see? The fact is the Japanese (and Germans) make great cars at competitive prices. GM’s systemic problem is one of lack of innovation, trying to make too many products for too many markets. Accordingly, Mr. Kerkorian is going to have a hard time getting this company turned around.

It’s a good thing that Mr. Kerkorian has a lot of money to spend, because an equity position in GM is likely to take a very long time to earn a return.