The trade is now positive.
Before we uncork that champagne, let’s look at a few items. Tracinda, Kirk Kerkorian’s investment vehicle for the tender, owns about 10% of GM (third-largest shareholder). From November 2005 to May 2006, GM’s stock bounced around between $18-24. That means the Tracinda suffered a drawdown on the tender offer of about 41% — marked-to-market losses of as much as $355 million dollars. The initial 22 million shares bought at an average cost of $26.33 ($579.26m) were down about 25-30%, a $150m or so drawdown.
At the end of 2005, Kerkorian had some tax selling to do, dropping his GM stake
from 10% to 7.8%. He repurchased it more than 30 days later (beware the wash
For all this Sturm und Drang, the $1.8 billion dollar position could have sat in cash, earning CD rates of 5.3+%. That’s an uneventful $100 million dollars, with no sleepless nights.
Let me reiterate that investors need to think twice before blindly following the investment strategies of billionaires. Their risk profiles and goals are likely to be far different than your own. Take the GM buys: this looks like it was an exciting diversion for Mr. Kerkorian, who is 87 years. The transaction rehabilitated his image as a greenmailer, and also revealed him to be a canny trader. But unless you dumped the stock at the right moment, bought it back near the lows, and suffered a major drawdown, I’ll bet this was not a great trade for most individuals.
On a final note, the initial GM purchases made by Tracinda were done at 52 week lows . . .