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Ford Shares Soar After Kerkorian Boosts Stake

Billionaire Kirk Kerkorian, a veteran investor in the troubled U.S. auto industry, has taken aim at Ford Motor, looking to acquire a stake of 5.6 percent stake through his investment vehicle Tracinda.

Ford
Gene J. Puskar
Ford

Kerkorian, 90, who previously held a nearly 10 percent stake in General Motors and made a failed bid for Chrysler last year, began amassing shares of Ford, the No. 2 U.S. automaker, on April 2.

Analysts were left to speculate on what Kerkorian's "end-game" would be for the investment and whether he would push for additional asset sales by Ford, which has agreed to sell Jaguar Land Rover to Tata Motors.

Tracinda said Monday it already holds 100 million Ford shares, or about 4.7 percent, and plans a cash tender offer to acquire 20 million more shares, or nearly 1 percent of the stock, at $8.50 per share, or a 13.3 percent premium over Friday's close.

Ford shares were up over 11 percent after Tracinda's announcement.

Tracinda said it had been following Ford closely since the automaker released fourth-quarter results in January and its belief that Ford's turnaround was working was reinforced by the company's reporting of a surprise first-quarter profit last week at a time when U.S. auto sales are slumping.

Tracinda said it believes that Ford management, led by Chief Executive Alan Mulally, would continue to show significant improvements in financial results.

Ford said the Kerkorian investment represented an endorsement of its turnaround strategy and noted that anyone was free to acquire its shares on the open market. It also said it remained focused on executing its turnaround.

"We welcome confidence in Ford and the progress we are making on our transformation plan," Ford Executive Chairman Bill Ford and Mulally said in a joint statement.

The Ford family controls almost 40 percent of the voting power at the automaker through a separate class of shares established when the company went public in 1956.

Ford lost $2.7 billion in 2007 and $12.6 billion in 2006. It has forecast a return to profitability in 2009 after slashing costs in the U.S. by cutting jobs and closing plants.

Kerkorian has a long record as an interventionist investor in Detroit and his ownership of GM stock came with a short stint by his adviser, Jerry York, serving on GM's board.

Ford's Direction

An offer by Kerkorian to buy out the Ford family and an eventual merger with another international automaker would be "intriguing" but seemed unlikely, Calyon Securities analyst Mark Warnsman said in a note for clients.

Warnsman said further asset sales were possible, with Volvo being the most likely target. Ford's 33-percent stake in Mazda Motor and its ownership of finance arm Ford Motor Credit both create more value as part of Ford than they would through a sale, he added.

Kerkorian's endorsement of Ford's direction under Mulally, a former Boeing executive hired in 2006 to take charge of Ford's turnaround, marked an apparent shift from the billionaire investor's more recent confrontational approach.

Kerkorian built a 9.9 percent stake in GM in 2005, a move that gave him leverage to place York on the automaker's board.

But Kerkorian and York, who had been seen as taking aim at GM Chief Executive Rick Wagoner, failed to broker a tie-up between GM and Renault-Nissan or to convince GM to spin off brands such as Saab and Hummer. Kerkorian sold his stake when GM rejected his proposals.

"We sense that Mulally's relationship with Kerkorian is, at least for now, fairly cooperative," JP Morgan analyst Himanshu Patel said in a note.

York remains an adviser to Kerkorian but it was not clear how active he would be in Tracinda's Ford investment. Tracinda's statement did not say whether Kerkorian would be seeking a seat on Ford's board.

Bear Stearns analyst Peter Nesvold said the action was reminiscent of Tracinda's initial investment in GM, which was considered passive at first. But he said there was less opportunity for Kerkorian to agitate for changes at Ford because the automaker is further along in its restructuring.

Tracinda's average cost for the 100 million shares was about $6.91 per share, or $691 million for his initial investment. The tender offer would run another $170 million, bringing the total investment to about $861 million.

Kerkorian, who is the sole shareholder of Tracinda, bid $4.5 billion for Chrysler in 2007.

He sold off his $1.69 billion stake in GM at a slight loss before accounting for transaction cost and other expenses.

Ford shares were up 87 cents, or 11.6 percent, at $8.37 in Monday afternoon trading on the New York Stock Exchange. Ford's 7.45 percent bonds due in 2031 rose to 76 cents on the dollar, from 73 cents on the dollar, last Thursday, according to MarketAxess.

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