GM?

[player24]

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I've said it before and I'll say it again - GM is not going bankrupt thus no restructuring. If they came close, the government would bail them out. Do you think Kerkorian would be buying stock if he thought they were going under? They need to sell some non-core assets like GMAC (non GM exposure), shake up management and start building cars that people will buy, not the junk they have been pushing on middle America for the past 30 years.

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So, do you think Kerkorian is buying the stock because he believes the Government will bail out GM...or because GM builds "junk" cars? When the Government bails out GM will they pay Kerkorian $31+ per share for his stock?

Why do you suppose Kerkorian needed to make a tender offer to acquire the stock? The stock is very liquid - he could have bought it in the open market at lower prices than $31 per share. Perhaps Kerkorian wanted everyone to know that he was buying stock? Perhaps Kerkorian already had a stock position and he knew a public tender offer would set off a a short covering rally and he would profit on his initial stock position.

Or perhaps Kerkorian thinks he can dividend GM's liquid assets (cash and GMAC) to shareholders and leave creditors holding the bag (the worthless auto division.) This sort of value transfer (bondholders to stockholders) is sometimes possible given the weak indenture protection in most investment grade bonds (weak restricted payment protection).

The government may be forced to backstop a portion of GM's pension obligation in a bankruptcy (via the PBGC). However, I can't imagine an investor "bailout" (which violates World Trade Organization rules, btw).

[midas]

I think Kerkorian bought the stock to shake GM into doing something greater than the status quo. Regarding his tender offer, the word might have already leaked that he was a buyer and he wanted to cap his purchase price.

I wonder if Buffet thinks that GM is a good deal? He loves buying into these situations, but may avoid if Kerkorian is already in.

[player24]

I think Kerkorian knew he was creating a short squeeze and that is what motivated the above market tender. No way he would have made the same tender if he hadn't already owned stock (which he acquired at much higher prices, btw.)

One scenario has someone like Berkshire Hathaway (Buffet) taking a partial ownership stake in GMAC. GMAC depends on GM for business, and vice versa. So it is unlikely that we will ever see a full separation of the auto and auto finance units.

BTW, Collins and Aikman is the latest US auto supplier to be on the door of bankruptcy. The CEO resigned today, and the company is guiding the market to much weaker performance.

Delphi, the nation's largest auto supplier is in the market trying to issue secured debt and the market is balking thus far. Delphi is burning enormous amounts of cash, has huge GM exposure, an underfunded pension plan and a 2006 debt maturity.

We have already seen a number of bankruptcies in the supplier sector, including Tower Automotive and Meridian. Many more to come.

As has been broadly reported, there is a contagion effect in the corporate bond market and a spillover into all capital markets. Many credit hedge funds are under pressure, but some of the recent reports have been exaggerated.

[DesertCat]

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I wonder if Buffet thinks that GM is a good deal? He loves buying into these situations, but may avoid if Kerkorian is already in.

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If you read Buffett's writings on the auto industry, you'd think he'd burn his cash before he'd stick it into an auto company.

Of course he's written similar things about airlines, and made a single investment in USAir fifteen years ago because the terms he was offered (convertible debt I believe) were so attractive. That investment turned out okay, but not until he suffered through several awful years where it looked like a terrible decision. He know claims to have a 1-800 number to call to talk if he ever gets the urge to invest in an airline again.

So what would it take for Warren E. Buffett to get interested in GM? He'd never be interested in the auto manufacturing part because of the huge capital requirements, as well as the poor cost structure. For example, Toyota has been attractive at times, but WEB has passed, probably because he doesn't like businesses that are forced to reinvest large portions of their earnings.

As the other poster said, he might be interested in GMAC, but I doubt he'd ever take a position unless it was spun out completely safe from pension and other claims created by the auto business. He'd also be wary of current management having any control over it since their capital allocation standards are among the worst in the country. And even if GMAC is spun out, it's price is likely to be too high for WEB.

You might see him buy small profitable subsidaries, or loan GM money through a convertible at usurious terms, but that's as close as he's likely to get.