Video: Kerkorian bets on Ford

updated 4/28/2008 4:45:31 PM ET 2008-04-28T20:45:31

Billionaire investor Kirk Kerkorian, making another attempt to shape the U.S. automotive industry, disclosed Monday that he had acquired a 4.7 percent stake in Ford Motor Co. and hoped to boost his holdings as the company tries to return to sustained profitability.

Tracinda Corp., Kerkorian’s investment company, said it planned to make a $170 million cash offer for up to 20 million additional shares at $8.50 a share, citing evidence that Ford’s turnaround plan was working.

Kerkorian’s announcement touched off a wave of speculation on how he might try to influence the Dearborn, Mich., automaker in the coming months. The 90-year-old mogul made an unsuccessful bid for Chrysler last year and pushed for General Motors Corp. to form an alliance with Nissan Motor Co. and Renault SA in 2006 after acquiring nearly 10 percent of the company.

The Ford family, while owning 4 percent of the company’s shares, has 40 percent voting rights of the company through a special class of stock, making a takeover unlikely, analysts said. Kerkorian could be interested in leaving his imprint on the company’s turnaround, putting an ally on Ford’s board or advocating for an alliance with another automaker, they said.

“Tracinda is unlikely to be activist in the conventional sense given the voting structure. Instead, we believe it will seek to be a ’constructive agitator,”’ said Morgan Stanley & Co. auto analyst Jonathan Steinmetz in a note to investors.

Kerkorian’s offered price represents a 13.3 percent premium over Ford’s closing price on Friday. Video: Ford’s road ahead

Tracinda said Ford’s first-quarter results reinforced that the company is having success in its turnaround efforts, despite the difficult U.S. economy.

“Tracinda believes that Ford management under the leadership of Chief Executive Officer Alan Mulally will continue to show significant improvements in its results going forward,” Tracinda said in the statement.

Ford on Thursday announced it had turned a surprise profit of $100 million in the first quarter of this year, its first quarterly profit since the second quarter of 2007.

Following the positive news, Mulally reiterated his promise that the automaker’s restructuring will return Ford to black ink for 2009.

Tracinda said it began accumulating 100 million Ford shares, or 4.7 percent of the outstanding stock, on April 2 at an average cost of $6.91 per share. If his latest offer is accepted, that stake will increase to 5.6 percent.

An investor has to file a disclosure with the U.S. Securities and Exchange Commission if he goes over 5 percent of the voting stock in a publicly traded company.

Kevin Tynan, an analyst with New York-based Argus Research, said Kerkorian was likely trying to be more than just a passive investor.

“He owns it nice and cheap. The word gets out there he’s involved. The first-quarter results were strong, relatively speaking. Even if he walks away somewhere down the road, it would most likely be at a profit,” Tynan said.

Ford’s leaders, in a statement, did not mention Kerkorian or Tracinda by name but said they welcome confidence in the company and in the progress it has made with its restructuring.

“Any investor can purchase Ford shares, which are sold on the open market,” Mulally and Ford Executive Chairman Bill Ford said in a joint statement. “The Ford team remains focused on executing our plan to transform Ford into a lean global enterprise delivering profitable growth for all.”

The Ford offer is just the latest effort by Kerkorian to build a significant investment in a U.S.-based automotive company.

A year ago, Tracinda made an unsuccessful $4.5 billion cash offer for Chrysler, and in 2006 it dumped the last block of what once was a nearly 10 percent share of General Motors.

He won a seat on GM’s board for Jerome York, one of his advisers, and pushed for an alliance between GM, Nissan and Renault. GM’s board voted to explore the possibility, but after three months of discussion, the idea was scrapped.

Tracinda also was Chrysler’s largest shareholder at the time of its 1998 merger with DaimlerBenz. He sued the combined company in 2000, claiming Daimler-Benz engineered a takeover of Chrysler, then cheated him out of billions by casting the deal as a merger of equals. A federal judge rejected his claim.

If Kerkorian buys the 20 million additional shares for $8.50, his total per-share cost would be $7.18 including the 100 million shares purchased at $6.91, Tynan said. That would put his investment in Ford at about $861 million.

Tracinda, which is named after Kerkorian’s daughters, Tracy and Linda, has the majority stake in the casino and hotel operator MGM Mirage Inc.

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