Kerkorian sells Ford shares, plans to unload entire stake
In an apparent vote of no confidence, billionaire Kirk Kerkorian has sold part of his 6.49% stake in Ford Motor Co. and said Tuesday that he would try to unload all of his holdings in the company.
The news is the latest sign of troubles at Ford, which saw two board members depart last week, lost its chief financial officer the week before that and posted $8.6 billion in red ink for the first two quarters of the year. Through September, Ford’s U.S. sales have declined 17% compared with the first nine months of 2007.
That kind of bad news, along with concerns that Ford’s cash holdings are insufficient for long-term viability, has battered the automaker’s stock. On April 21, when Kerkorian began acquiring shares, Ford closed at $7.73. On Monday, Kerkorian’s investment company, Tracinda Corp., sold 7.3 million shares for an average price of $2.43 apiece.
Overall, Kerkorian spent about $1 billion to acquire his stake in Ford. As of Tuesday, that stake was valued at $289.7 million, a 71% loss.
Citing “unique value in the gaming and hospitality and oil and gas industries,” Tracinda said it “intends to further reduce its holdings of Ford common stock, including the sale of all its remaining 133,500,000 shares.”
Analysts viewed the news as another indictment of Ford’s situation and an indication that Kerkorian saw little hope for the company. “Who needs the aggravation of trying to turn around a distressed company in a troubled industry in the middle of an economic downturn?” said Shelly Lombard, analyst at debt research firm Gimme Credit.
Ford spokesman Mark Truby declined to comment on the investor’s move. “There’s a lot going on in the industry right now,” he said. “What we’re trying to do is stay focused on our plan, which is to transform Ford into a profitable auto company.”
Ford, like General Motors Corp. and Chrysler, has been the subject of bankruptcy speculation in recent months. None of the automakers has been able to tap debt markets. That, plus sliding revenue, is forcing them to make ends meet by using fast-diminishing stockpiles of cash.
Liquidity concerns are part of what has led GM to approach Chrysler about a merger, which could save a combined company billions in operating costs.
According to their second-quarter results, Ford and GM each are burning roughly $1 billion in cash per month. Citing cash burn, JPMorgan Chase & Co. analyst Himanshu Patel on Tuesday widened loss expectations for Ford and GM in 2008 and 2009.
For Kerkorian, the decision to get out of Ford stock seems likely to mark the end of the 91-year-old’s on-again, off-again affair with Detroit.
Kerkorian was once the largest stakeholder in Chrysler, before it was sold to Daimler-Benz in the late 1990s. And in 2006, Kerkorian made an unsuccessful attempt to use a 9.9% stake in GM to push it into relationships with Nissan Motor Co. and Renault, after which he sold his entire stake. In 2007, he made a failed bid for Chrysler, which was sold to Cerberus Capital Management.
His decision to invest in Ford surprised some because it has a two-class equity system that keeps 40% of voting power in the Ford family’s hands. That makes it essentially impossible for an outsider to take control of the company.
Kerkorian’s largest holdings have performed miserably this year. In December 2007, he acquired a 35% stake in Delta Petroleum for $684 million; it’s worth $359 million now. And his 149 million shares in MGM Mirage, worth as much as $95.66 each in the last year, are down to $14.41.
The decline in MGM, 50 million shares of which were used as collateral on a line of credit used to buy the Ford stock, forced Kerkorian to pledge an additional 50 million shares last week. But unlike Ford and Delta Petroleum, his casino business is profitable.
Ford shares fell 16 cents Tuesday to $2.17, a 6.9% slide. That cost Kerkorian $21.4 million on the shares he still holds.
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