Kerkorian bids to boost Ford stake
Looking to control more than 5% of automaker, financier offers to buy 20 million shares for $170 million, and says he already owns 100 million shares.
NEW YORK (CNNMoney.com) -- Billionaire financier Kirk Kerkorian announced Monday that he's offering $170 million for 20 million shares of Ford Motor Co., which - combined with the 100 million shares he purchased earlier this month - would boost his stake in the automaker above 5%.
Kerkorian's investment firm, Tracinda Corp., announced the $8.50-a-share offer for Ford shares in a statement.
The price represents a 13.3% premium over Friday's closing price of $7.50. The 20 million shares would represent just under a 1% stake in Ford on top of the 4.7% stake Tracinda - whose sole shareholder is Kerkorian - said it now owns.
Investors need to disclose when they purchase more than 5% of a publicly traded company, meaning Kerkorian could not have added many additional shares to his current stake without a public filing.
Ford issued a statement in which CEO Alan Mulally said he welcomes confidence in the company and the progress it is making in its transformation plan. Since 2005, the company's cost-cutting efforts have tried to stem losses in Ford's core North America operations.
Tracinda said it has been buying shares since April 2, when shares were trading at between $5.93 and $6.33 a share. It said the average price for the 100 million shares was $6.91.
Shares of Ford jumped after the company reported a surprise $100 million first-quarter net income last week. Shares climbed as high as $8.79 in trading Thursday, before retreating to $8.40 at the close. It gave up much of that gain Friday.
Kerkorian's statement said he was making the offer because of his confidence that the company will see continued improvement in its financial results under the leadership of Mulally.
"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 statement said. "Last week, this was reinforced by Ford's first-quarter 2008 results, achieved despite the difficult U.S. economic environment."
Despite the improvement and the better-than-expected results, Ford has continued to lose money in its core North American auto operations.
Ford has closed numerous plants in recent years and plans to close more in an effort to bring capacity more in line with reduced demand. It also has offered all 55,000 of its hourly workers buyouts and early retirement packages, hoping to replace them with lower-paid workers with less expensive benefit packages - an option it won in a labor deal struck last year with the United Auto Workers union.
Ford lost its long-held position as the nation's No. 2 automaker to Japanese rival Toyota Motor (TM) last year as its U.S. sales fell nearly 12%. Part of its lost U.S. market share came from a deliberate decision to cut back on less profitable fleet sales to businesses such as auto rental companies.
But Ford was also hurt by a 13% drop in sales of the F-Series pickup truck, the nation's best selling vehicle. A favorite of contractor, pickup sales were hurt by the downturn in the housing market.
In the first quarter, Ford's sales were down another 9% from a year earlier and early readings on April sales suggest it will see another sharp downturn this month due to the slowing U.S. economy and tighter credit for potential car buyers. But the weak sales are now more of an industrywide problems.
Kerkorian made a similar tender offer to buy shares of General Motors Corp. (GM, Fortune 500) back in 2005, and he pushed the company toward a number of steps, including a cut in its dividend to preserve cash and a cut in executive and director pay in order to win concessions from unions.
But he was unsuccessful in his efforts to push GM to combine with the alliance between French automaker Renault and Japanese automaker Nissan. He eventually sold his stake in GM in 2006, giving him a slight trading loss on his investment, but a narrow profit when considering dividends.
He also was once the largest individual shareholder of Chrysler until its purchase by German automaker Daimler Benz in 1998. When Daimler put Chrysler up for sale in 2007, he announced a $4.5 billion offer for that company, only to lose out to private equity firm Cerberus Capital Management.