MGM shares spike on Tracinda buy; GM falls; Delta eases, other airline stocks fly; Sirius, XM better

By Ronda Fears

Memphis, Nov. 22 - MGM Mirage shares zoomed Wednesday after Kirk Kerkorian's Tracinda Corp. took another step toward gaining greater control of the gaming giant with a cash tender offer for up to 15 million shares at $55 each. However, in another Tracinda move - the sale of 14 million shares of General Motors Corp. stock at $33 apiece - GM's stock dropped under that mark.

The MGM offer, worth up to $825 million, is better than a 12% premium to the Tuesday close for MGM shares and sent the stock (NYSE: MGM) climbing by $5.21, or 10.63%, to $54.21 to a new 52-week high. The previous high was $49.36.

Tracinda already owns 56.3% of MGM, and if the full tender is exercised, that would boost its stake to 61.7%.

"Even if it was just blowing smoke, and these guys don't just toss money around because they don't have anything better to do, you figure the stock is going to make a run to the offer mark," remarked one equity trader.

In an announcement, Tracinda said the move "demonstrates our confidence in MGM Mirage and its management and our commitment to the company's future."

MGM ranks second to Harrah's Entertainment, Inc. - currently the target of a private-equity buyout bid - in terms of annual revenue. However, Kerkorian has built MGM into a dominant player on the Las Vegas Strip, first with the acquisition of Mirage from Steve Wynn in 2000 and then by its takeover of Mandalay Resorts last year. Among the properties that MGM Mirage owns in Sin City are the Bellagio, Mandalay Bay, Treasure Island and the MGM Grand.

In addition, MGM has casinos scattered around Nevada and in Michigan and Mississippi, plus exposure to Atlantic City via a joint-venture deal for the Borgata property with Boyd Gaming Corp., as well as a 50% stake in the MGM Grand Macau, set to open next year.

GM suffers on Tracinda sale

With its boost in MGM, however, Tracinda said it has sharply cut its stake in General Motors, with the sale of some 14 million shares at $33 each, and GM shares suffered with a 5% drop to well below that level.

A dissident GM stakeholder, Kerkorian, via Tracinda, said Wednesday he cut his position in GM to 7.4% from 9.9%. Tracinda said in a Securities and Exchange Commission filing on Wednesday that it had agreed on Monday to sell the shares at $33 each in a private transaction, and the transaction is set to close Friday.

In reaction, GM shares (NYSE: GM) plunged $1.52, or 4.66%, to $31.09.

"There was a massive sell-off," said another equity trader, noting volume of 35.4 million shares compared with the norm of 10.3 million shares.

"I think a lot of people see GM overvalued anyway and so they were taking any profits that they could get. The 52-week high is $35.56, and the stock closed yesterday [Tuesday] at $32.61."

Delta stock off on bond news

In the airline group, Delta Air Lines Inc. shares took a hit that equity traders attributed to a rise in the bankrupt No. 3 domestic carrier's bonds, which were seen better by 2 points Wednesday on reports on the wires saying an ad hoc group of bondholders was forming, possibly to support the US Airways takeover bid for the bankrupt No. 3 domestic carrier.

Delta shares (Pink Sheets: DALRQ) dropped 3 cents, or 4.26%, to settle at $1.35.

"The hedge funds that are long the bonds are shorting the stock," said an equity trader at one of the bulge bracket firms.

"From what we are hearing, if the bondholders are successful in getting a deal done with US Air, this will be good for the stock. So, I would be a buyer on the dip. But what we saw more than anything was some profit taking on the recent bounce."

The trader noted that Delta shares traded up to $1.50 on Wednesday before easing back.

Some Delta bondholders have begun organizing an informal group to support US Airways' $8 billion takeover bid for the Atlanta-based carrier, according to a Reuters report. Since the bid emerged a week ago as a $4 billion cash offer with the remainder in US Airways stock, US Airways shares have risen to make the offer worth around $8.78 billion.

UAL higher on Delta news

There also has been speculation that a competing bid for Delta might surface, with a likely bidder considered to be UAL Corp., parent to United Airlines, which emerged bankruptcy last year.

UAL shares (NYSE: UAUA) gained $1.72, or 4.07%, to close at $44.00 Wednesday on volume of 4,169,009 shares versus the norm of 2,866,250 shares.

"There is a fair amount of deal risk on this one," said a buyside market source. "I would stay away from it. It seems there is more downside risk even if they get a deal done, because they would be buying a bankrupt carrier."

Delta management has vowed to fight the US Airways bid, wanting to remain independent, and has said it will present a reorganization plan in bankruptcy court by mid-December.

Reportedly, the Delta bondholder group is considering all options but could end up pressing Delta creditors to accept the US Airways bid. In conference calls yesterday with Deutsche Bank AG and Lehman Brothers Holdings Inc., bondholders were urged to band together to pressure Delta to fully consider the bid from US Airways and any other offers that arise, according to the Reuters report.

Northwest climbs over 33%

In reaction to the Delta news, Northwest Airlines Corp. stock zoomed higher by 33.59%, shrugging off a temporary delay of flights in Minneapolis as baggage handlers walked off the job briefly in a dispute over who will clean airplanes. Continental Airlines Corp. and AMR Corp., parent of American Airlines, also participated in the party to a lesser extent.

Northwest shares (Pink Sheets: NWACQ) added 88 cents on the day to close at $3.50.

AMR shares (NYSE: AMR) gained 74 cents, or 2.22%, to $34.

Continental shares (NYSE: CAL) rose 59 cents, or 1.33%, to $44.97.

"There is a lot of short covering, particularly in Northwest, going on; that is most of what is happening," said a sellside broker. "We are not calling this a smart purchase. Northwest is in bankruptcy like Delta, so a buyout most likely would be the best shot at getting any return on the equity. But, all of it seems pretty far-fetched at this point."

Thus, he said it would be more prudent to take profits from the rise in Northwest shares.

Sirius, XM Satellite bought up

Ahead of the Christmas shopping season, which traditionally begins the Friday after Thanksgiving, traders said Sirius Satellite Radio, Inc. and XM Satellite Radio Holdings, Inc. stock were hot items.

A good deal of the rise was attributed to short covering and profit taking, but traders said there also was considerable outright buying.

"The satellite radio concept has taken hold officially," one trader said. "It was just a pipe dream, and then they got the major automakers onboard, and it has taken off. With a seasonal pop during the holiday expected, the stock is getting a lot of new buyers."

Sirius shares (Nasdaq: SIRI) were up by 32 cents, or 8.06%, to $4.29.

XM Satellite shares (Nasdaq: XMSR) gained 91 cents, or 6.22%, to $15.53.

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