Paul Ingrassia, former Dow Jones Detroit bureau chief, writes an opinion piece for The Wall Street Journal on the failed alliance talks between General Motors (GM/NYSE) and Nissan-Renault:
Rick Wagoner, the CEO of General Motors, has to be corporate America's Comeback Kid. But after a dramatic week in the battle to reshape GM and the global auto industry, Las Vegas billionaire Kirk Kerkorian -- GM's largest individual shareholder and Mr. Wagoner's nemesis -- might still hold a winning hand.
Ingrassia paints two scenarios of how things could work out:
First is that Wagoner succeeds in producing a durable turnaround. Kerkorian wouldn't be rid of Wagoner, but would be more than content with seeing his $1.6 billion investment in GM more double.
Ingrassia writes that Wagoner claims that he's cut $9 billion from GM's structural costs. And that if half that amount flows to GM's bottom line, it amounts to $8 per GM share:
Using a conservative price-earnings ratio of eight (half that of the broad stock market), General Motors shares should be selling for $64 apiece -- more than double the average amount that Mr. Kerkorian paid for his GM shares. Thus if Mr. Wagoner is right, Mr. Kerkorian stands to make a killing, though not quite as much as the $3 billion profit he pocketed from his timely investment in Chrysler in the early 1990s.
The second scenario is that GM's turnaround stalls or isn't real, and this becomes evident over the next year. This is when Kerkorian renews his campaign for change. Back to Ingrassia:
Whether Mr. Kerkorian waits around for either scenario to unfold is unclear. The billionaire doesn't have to rush to judgment -- except that he happens to be 89 years old. If he chooses to sell part of his 9.9% stake in GM, he'd be positioned to profit if the stock goes up, or to repurchase the shares at a lower price if their price falls.
The excellent article ends with this:
This is a high-stakes poker game among rich and powerful men to control and shape one of the world's largest and most visible industries -- and one that tugs at emotions ranging from national pride to consumers' desires. Mr. Wagoner has just won a big hand. But the best bet is that the game will continue.
I may be crazy. But my bet is that GM shareholders who bought over the past year and a half will be winners.
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