A Gm Discount For Kerkorian? Nope.

The big consumer news out of General Motors lately has been employee-discount pricing, the buy-low program that GM said last week is drawing to a close. But GM's biggest shareholder, Kirk Kerkorian, has taken quite a different approach to purchasing GM's stock: buying high. The 88-year-old billionaire takeover tycoon is even willing to pay higher taxes to make his strategy work.

Has Captain Kirk lost his golden touch? You might think so, but there's a good explanation for his latest Motown maneuvers: he thinks GM's cheap and prefers loading up on it to pinching pennies.

Kerkorian, who finished his most recent round of purchases last week, now owns 9.53 percent of GM, a huge stake. Even though the stock has fallen well below the $35 to $35.71 a share he's just paid, he was ahead by $120 million (on an investment of $1.62 billion) as of Friday. He's betting big bucks that GM doomsayers are wrong.

You'd think that such a big stock buyer might command a volume discount, the way GM does when it buys zillions of brake pads or door handles. But Kerkorian's latest Securities and Exchange Commission filings show something funny. When he bought, Kerkorian paid as much as $1.20 a share above the highest price of the day. That's because he made large private purchases, presumably from Wall Street players who lined up stock for him, without the world knowing what he was doing. This way, he could buy $480 million of stock without news of his trades running up the price even further.

Even billionaires occasionally prefer borrowing money to tying up their own cash, so Kerkorian recently got $400 million of credit from Bank of America to buy GM stock. And BofA isn't just any bank. It's the same bank that is buying up to $55 billion of loans made by GMAC, GM's financial arm. This means BofA is financing both sides of what I consider an inevitable Kerkorian-GM battle. This isn't what you expect banks to do--but the bank clearly liked its GMAC deal and wasn't about to walk away from Kerkorian, after having lent him money for 50 years. I'd love to tell you what GM, BofA and Captain Kirk say about all of this, but they all declined any meaningful comment.

Anyone who's hung around Detroit recalls how Kerkorian bought a big stake in Chrysler in the 1990s and for years said all the right things about supporting management. But he grew impatient and launched a hostile tender offer. It failed, but ultimately helped force Chrysler's sale to DaimlerBenz.

Because Kerkorian is such an important borrower, his deal with BofA allows him to mount a proxy campaign against GM. You don't often see banks finance proxy contests against customers, but BofA gave him similar terms to buy stock in Chrysler and MGM Grand. The GM loan, as it stands, prohibits Kerkorian from buying more than 10 percent or launching a hostile takeover (GM no doubt takes great comfort in this). But I suspect these limitations would disappear, regardless of how GM feels, if Kerkorian wished it.

Kerkorian is buying GM stock through corporations he controls rather than in his own name. This is where his bigger tax bill comes in. Because his corporations are now borrowing money to buy GM stock rather than using cash on hand, they're giving up a huge tax break. Why? Because if a corporation buys stock with borrowed money, it has to pay far more taxes on its dividend income. (I'll spare you the gory details.) With help from Lehman Brothers tax expert Robert Willens, I calculate this will cost Kerkorian about $2.6 million a year in higher federal income taxes at his current borrowing level of $187 million. Why is he doing this? Beats me.

Bottom line: this all shows Kerkorian thinks GM stock is a Wall Street version of discount pricing. By the time he's 90, we'll find out if he was right.

Sold to the Highest Bidder

What did it cost Sotheby's to make convicted bid-rigger A. Alfred Taubman, who got out of jail two years ago, give up control?

Answer: $48 million. That's the difference between what Sotheby's paid for the Taubman family's 14 million "supervoting" shares last week and the market price of 14 million regular shares. This is an example of how expensive things can get for regular old shareholders when someone owning supervoting stock has a falling-out with a company and wants big bucks to go away. With Taubman's control now history, we could see a really big Sotheby's auction--this one for the company itself.

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