Kerkorian gets his Ford shares, and could get much, much more

Posted by: David Welch on June 13, 2008

If he wanted it, billionaire investor Kirk Kerkorian could grab a huge stake in Ford Motor Co. Kerkorian’s Tracinda Corp. investment firm said on Tuesday that 826 million of Ford’s 2.2 billion shares were tendered in response to the company’s offer to buy another 20 million shares, which raises Kerkorian’s stake from 4.7% to 5.6%. Kerkorian hasn’t offered to buy more than the 20 million he asked for, but if he wanted he could have grabbed a 37% stake.

It’s easy to see why investors sold. Kerkorian’s offer price of $8.50 a share was a nice return over Ford’s $6 a share stock price on Monday when the tender offer closed. Even if investors bought Ford at $7 a share, Kerkorian would cash them out with a tidy 21% return.

If Kerkorian wants to buy more and get up to that 37%, he would have a lot of clout. For Ford’s part, the Ford family would still control the company thanks to a big slug of class B shares that only its members own. Those shares alone give the Ford family 40% of the vote, plus whatever they hold in class A common stock. But Kerkorian could still pressure the Ford family and company CEO Alan Mulally to alter their agenda.

In a recent interview with BusinessWeek, Kerkorian advisor Jerome B. York said they will not be aggressive. He thinks Ford can boost its value from the $8.50 a share price easily based on the company’s current progress. With truck sales slumping, it may just take them longer than original thought to realize their gain. That said, if Mulally’s plan loses traction or York and Kerkorian think they have some smarter ideas, they could buy a bigger platform from which to shout.

When Tracinda had a chunk of General Motors stock in 2006, the firm didn’t have voting control. And York was tracinda’s sole representative on GM’s board. But Kerkorian and York still pressured the board and management team to look at a tie-up with Renault-Nissan. It didn’t happen, but management did pay attention. Before that, York delivered a speech calling for cuts to the dividend and exeucitve salaries, both of which were done not long after he made the suggestions. So maybe Kerkorian can’t get voting control, but he could still have influence. Keep an eye on this saga.

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Want the straight scoop on the auto industry? Our man in Detroit David Welch, brings keen observations and provocative perspective on the auto business.

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