Why Kerkorian is at it again
Posted
Apr 28 2008, 12:01 PM
by
Robert Walberg
Here he goes again. After runs at General Motors and Chrysler LLC in recent years, Kirk Kerkorian's investment company, Tracinda Corp, issued a release stating that it plans to bolster its stake in Ford to 5.6%, by offering $8.50 per share in cash for an additional 20 million shares. Kerkorian already owned 4.7% of the stock, or 100 million shares, at an average cost of $6.91.
Kerkorian cited Ford's improved operating performance as the rationale for his investment. Last week Ford shocked the markets when it announced a quarterly gain of 20 cents per share. The street was looking for a per share loss of 16 cents. Ford has now handily beaten the consensus estimates for six consecutive quarters, giving credence to Kerkorian's claim that the company's turnaround efforts are gaining traction.
However, don't for a minute believe that Kerkorian plans to sit by passively or watch from the sidelines as Ford's management team continues to execute its strategy. That's not his game. While an outright takeover attempt is highly unlikely given that the Ford family owns 40% of the stock's voting rights, don't be surprised if he pushes Ford toward an alliance with another auto maker as he did with GM and Chrysler, succeeding with the latter and failing with the former. At the very least, today's action should be seen as the first step toward pursuing a seat on Ford's board of directors. Read more...
Why Kerkorian thinks it's necessary to shake things up at Ford seems a bit odd, however, given that the company is gradually succeeding in its turnaround efforts under the thoughtful and decisive leadership of CEO Alan Mulally. Ford still has its problems, as does the rest of the industry at a time when gas prices are surging and demand for large trucks and SUVs (a staple of the Ford lineup) is collapsing. Nevertheless, you have to be encouraged by the operational improvements - including the recent sale of the underpeforming Jaguar and Land Rover brands.
Sales growth overseas, improved offerings domestically (such as the Edge and Focus) and a return to profitability are also signs that Mulally and his team are succeeding where others - GM in particular - are failing. There will still be plenty of bumps along the road, but when management predicts a return to profitability for its US division in 2009 you have to believe them, they've earned that much. They've also earned the right to proceed with their restructuring efforts without being pressured by a restless Kerkorian who can't seem to leave the auto companies alone. This is not the time to distract management with a push toward an alliance that would profit Kerkorian more than the company.
