Big GM Shareholder Trades Money-Losing Stock for Less-Risky Bonds

Not that General Motors needs any more ominous signs, but one of the company's biggest shareholders, Memphis-based Southeastern Asset Management Inc., this week sold close to half a billion dollars worth of stock, representing more than 7 percent of GM's common stock, and bought the equivalent amount of convertible bonds.

That sounds like six of one, half a dozen of the other, but the potentially ominous part of that transaction, which was disclosed in a Sept. 10 filing with the SEC, is this: one advantage of the bonds as opposed to stock, is that bondholders and other secured lenders, like banks, go to the head of the line of creditors to be paid, in the event GM ever goes bankrupt. (Uncle Sam -- that is, the IRS -- is always the very first in line.)

In addition to that advantage, the more straightforward explanation is that the likely return on the bonds is probably higher than the present return on the shares of stock, which have been a big money-loser for the firm, led by O. Mason Hawkins, chairman and CEO.

Based on GM's recent closing price, the Memphis company's shares probably fetched around $475 million, depending on when they were sold. Bloomberg said that Southeastern started buying GM stock at close to $65 per share in 1999, versus an average closing price last month of about $10.

According to GM's proxy statement, Southeastern was GM's No. 2 shareholder, behind Boston-based State Street Bank, with about 14 percent of GM. Southeastern's purchase represents 32.9 percent of the particular class of convertible bonds that it purchased, according to an SEC filing.

A spokeswoman for Southeastern Asset Management this week did not return calls for comment.

In a May presentation, Staley Cates, president of Southeastern's Longleaf Partners Funds mutual fund, said that the firm likes GM's long-term prospects in the truck segment, even though gas prices are hurting trucks in the short run; that under Vice Chairman Robert Lutz, GM's newest products are doing well; and that GM is successful in other world markets like China and Brazil.

"Those are the pockets of strength," he said.