What Are You Doing, Kirk?

Kirk Kerkorian is investing billions in GM. Is this genius or lunacy?

What goes on in that pretty little 87-year-old head?

What a week it’s been for General Motors! On Tuesday, yet another disappointing sales report: down 7 percent in April. Yesterday, Standard & Poor’s cut the ratings on GM’s prodigious debt to junk.

Yet amid the gloom, GM received a huge vote of confidence. Before the market opened Wednesday, Kirk Kerkorian, the legendary 87-year-old investor, publicly announced that he would buy up to 28 million shares of GM stock at $31 per share. (The stock had closed Tuesday at $27.77.) Added to the 22 million shares he already owned, this tender offer would bring Kerkorian’s total to about 50 million, or 9 percent of GM’s stock.

Kerkorian doesn’t appear on CNBC or give many interviews. He’s a private man with a history of making huge money on public companies. And in the absence of a formal declaration of intent, his intentions toward GM remain shrouded in mystery. After all, the company’s problems are well-known and apparently worsening. And Kerkorian could have quietly acquired many millions of shares at a much lower price simply by buying them in the open market. So, what’s he up to?

Here are five theories:

Theory #1: Kerkorian is a Warren Buffett-esque, long-term, tenacious, empire-building investor, and at age 87, he’s seeking one last big triumph. James Cramer thinks Kerkorian is in at GM for the long haul; after all, in the 1990s, he amassed a big stake in another ailing car company—Chrysler—and helped push it to merge with Daimler in 1998. (He’s still pursing litigation against DaimlerChryslerover how the merger occured.) Look for Kerkorian to use his leverage to shake up management, engineer a transaction (or series of transactions), and boost shareholder value.

The Problem With This Theory: Kerkorian can’t possibly live long enough to turn GM around. Cutting GM’s Gordian-knot mess of bull-headed unions, clueless management, and legacy costs is practically impossible. This company is a salvage job, not a fixer-upper. Kerkorian is at an age when he shouldn’t buygreen bananas.

What’s in it for GM?

Theory #2: Kerkorian is like a fast-money hedge-fund manager trying to get out from under a bad trade. Look, the guy’s ancient. He needs to act quickly. The SEC filing shows that he already owns 22 million shares of GM, purchased at an average price of $26.33 per share. Lots of investors have been shorting GM—borrowing it and then selling it. By making a highly public, way-above-the-market bid, Kerkorian could force many of those shorts to cover and rebuy the stock. As the shorts rushed to cover, they’d propel the price upward and give him the opportunity to make a few quick bucks. Indeed, on Wednesday the stock closed at $32.80.

The Problem With This Theory: It would probably be illegal to do this. Dumping shares after making a tender offer would violate all sorts of securities regulations and cause immense damage to Kerkorian’s reputation.

Theory #3: GM CEO Rick Wagoner, who recently took charge of the company’s ailing U.S. auto business, may secretly be egging Kerkorian on as a not-so-subtle message to the unions. United Auto Workers, listen up. Kerkorian’s tender offer is a sign that he and other outside investors with loads of cash could easily acquire a big stake in the company, or the whole thing, and ram solutions to GM’s problems down your throat. So, quit smoking and start negotiating benefit cuts.

The Problem With This Theory: It presumes a degree of foresight and calculation on the part of GM’s management that it has,to date,done a very good job of hiding.

Theory #4: This is the first step of an effort by Kerkorian to buy the whole company so he can take it private or sell off its profitable financing pieces and restructure. Merrill Lynch analyst John Casesa said in an article that Kerkorian’s interest seems focused on GM’s non-auto businesses, such as the financing arm.

The Problem With This Theory:Breaking up is hard to do.GM has $291 billion in debt. No matter how much the company could raise by selling the financial unit,GMAC, it will barely dent the company’s liabilities. And it will be difficult for GM to reduce its pension and health-care costs sharply without a trip to Chapter 11, which would render Kerkorian’s stock worthless.

Theory #5: Kerkorian’s an eccentric, inscrutable billionaire. Kerkorian has built himself from nothing to $8.9 billion. He’s got more gumption and energy than people one-third his age. Kerkorian clearly operates on a different level than the rest of us mortals. Time and again, he’s found value in businesses where others saw only disaster. Who are we to question his motives?

The Problem With This Theory: There is no problem with this theory.