Global Insight Perspective | |
Significance | Billionaire investor Kirk Kerkorian's Tracinda Corporation has announced a tender offer to purchase Ford shares for US$8.50 per share, or 13.3% above Friday’s (25 April) closing price. The investor aims to increase his stake from 4.7% of the company's common stock to 5.6%. |
Implications | Both sides claim that the investment is simply that, and that Kerkorian has the utmost confidence in Ford CEO Alan Mulally to continue to execute the company’s turnaround. The investment has reportedly been spurred by the past two quarters of better results from Ford. |
Outlook | The Ford family remains very much in control of the company with its special class of stock, but Kerkorian is known for being a very vocal investor; if the stock does not climb to his satisfaction, he is likely to take additional action. |
Billionaire investor and Las Vegas real-estate mogul Kirk Kerkorian's Tracinda Corporation has announced that it is seeking to buy up to 20 million shares of Ford Motor Company stock at US$8.50 per share, or 13.3% above the closing price on Friday (25 April). If successful, the move would leave Kerkorian and Tracinda with 5.6% of the publicly owned company, or 120 million shares of Ford's common stock. Kerkorian already owns 4.7% of the company through previous acquisitions that began on 2 April, according to a Tracinda press release. "Tracinda has been following Ford closely since the company released its fourth quarter 2007 results which indicated that Ford's management was starting to achieve highly meaningful traction in its turnaround efforts", the company said in a statement. "Last week this was reinforced by Ford's first quarter 2008 results, achieved despite the difficult U.S. economic environment." Ford posted a surprising US$100-million profit in the first quarter, sending the company's stock upwards.
Ford has responded to Tracinda’s statement nonchalantly, highlighting the investment as a sign that investors have confidence in the company's plan. "We welcome confidence in Ford and the progress we are making on our transformation plan", Ford said in a statement. "Any investor can purchase Ford shares, which are sold on the open market. The Ford team remains focused on executing our plan to transform Ford into a lean global enterprise delivering profitable growth for all", it added. The company's stock price soared on the news yesterday, approaching the US$8.50 tender price offered by Tracinda throughout the day, and prompting one investment bank to maintain its "hold" rating for the company. "While the Ford family controls the company via its voting stake, Kerkorian's interest, combined with recent better-than-expected results could be a short-term catalyst for share appreciation of the depressed stock", said Efraim Levy of Standard & Poor's (S&P).
Outlook and Implications
Kerkorian has a long history of involvement with the domestic U.S. automakers, and not much of it is viewed favourably by many in Detroit. Board members and executives look warily upon Tracinda when it comes knocking on the boardroom door, as it has at both General Motors (GM) and Chrysler. Tracinda was Chrysler's largest shareholder at the time of the sale to Daimler in 1998, a sale that was followed up by a lawsuit from Kerkorian, who claimed that he was duped in what was supposed to be a "merger of equals" between the two companies but which turned out to be anything but. Subsequently, he took a significant interest in GM, which started out as a supposedly innocent investment but ended up with Tracinda representative Jerry York on the GM board, and a generally unwelcome attempt by Kerkorian to forge an alliance between GM and Renault-Nissan in 2006.
The Ford situation is somewhat different. Tracinda's statement does state that: "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", but that is the same kind of vote of confidence it gave GM CEO Rick Wagoner when it first began acquiring GM stock. That confidence eventually gave way to open disdain for the GM CEO's turnaround plan, resulting in the aforementioned push to tie up with Renault-Nissan. However, Kerkorian is unlikely to become the active investor he was at Chrysler and GM. Kerkorian would find it difficult to push for a takeover of the company at Ford or even exert significant influence to try to change direction or management, given the Ford family's maintenance of a special class of stock that allows it to retain voting control of the company, and the confidence it has thus far expressed in the current management and leadership.
This is likely to be more a case of Kerkorian viewing Ford as a good investment, given the long-depressed nature of the company's stock and the recent two quarters of what appear to be solidly improving financial figures. Although Ford is still at least a year from being able to generate solid annual profitability, much of the major shrinkage of the company's rosters and products has been carried out, with underwhelming products being culled from the line-up and promising new vehicles supposedly just over the horizon. One thing is for certain, however: Kerkorian is not a quiet investor, nor is he a "car guy" at heart. His interest in Ford Motor Company is all about making more money, and nothing about strengthening the American auto industry. Should Kerkorian feel that the stock is not progressing at the pace he feels is appropriate, he will take action.