Kerkorian loses faith; starts selling Ford stock
22 Oct 2008
Billionaire investor Kirk Kerkorian's continued belief in Ford's management has often made front-page news, but now it seems that even the automaker's biggest supporter is losing faith. After pouring millions into a substantial stake in America's No.2 automobile manufacturer, the billionaire is looking to reduce his exposure to the company in order to safeguard his firm's gambling investments.
Tracinda Corp, Kerkorian's holding company, yesterday disclosed that it sold 7.3 million shares of Ford Motors on 20 October at an average price of $2.43 a share for proceeds of about $17.7 million. Additionally, it had contacted an investment bank about unloading the rest. Tracinda's remaining 133.5 million shares are valued at around $300 million at prevailing prices. These shares had been purchased at an average price of $7.07.
Kerkorian acted five days after Ford's collapsing stock price forced him to pledge another 50 million shares of his MGM Mirage casino company to back the $600 million credit line used to buy Ford stock. In a filing with the SEC, Tracinda said it would focus on the gaming and hospitality, as well as the oil and gas industries, "in light of current economic and market conditions."
Tracinda is the majority owner of MGM Mirage, the world's second-largest casino company. Tracinda's pledge of additional MGM Mirage shares last week doubled the total, to 100 million, put up as collateral for the credit line with Bank of America Corp. used to buy the Ford stock. That meant the loan was supported by 36 per cent of MGM Mirage's shares, endangering Kerkorian's control.
Kerkorian disclosed in late April he had acquired 100 million shares of Ford, and said on 19 June that he had boosted his stake to 140.8 million shares, or 6.43 per cent. He expressed support for CEO Alan Mulally's efforts to revamp the automaker with job cuts, plant closings and new car models after $23.9 billion in losses since 2005. (See: Kerkorian raise Ford stake again / Kerkorian reasserts faith in Ford; goes ahead with tender offer without escape clause / Shareholders offer to sell half of Ford Motor's stock to Kerkorian)
Yet even as Kerkorian unveiled his investment, conditions were worsening for Ford. Less than a month later, the automaker abandoned a goal for returning to profit in 2009, and it hasn't set a new target. Cash consumption also is increasing, Ford has said, without giving a figure. The automaker is looking to sell off several assets in a bid to raise cash.(See: Tatas in the running for Ford's proposed Mazda stake sale)
US industry wide auto sales fell 27 per cent last month, the biggest decline since 1991, as the credit crunch made it harder for buyers to find loans. Ford's sales were worse, falling 35 per cent.
The freeze on borrowing added to the battering from gasoline prices that surged to a record high in July and crimped demand for big pickup trucks and sport-utility vehicles sold mostly by Ford, General Motors Corp. and Chrysler LLC. These firms are now trading at record lows and exploring tie-ups to stave of bankruptcy.
(See: GM in talks with Chrysler, Ford and GM, Ford may drive into bankruptcy: S&P)
