Capital Markets

Kerkorian, Redstone React to Market Fall

As finance titans are forced to make moves, Kerkorian's Tracinda pledges MGM Mirage stock to backstop credit line for Ford share purchase, while Re...
Stephen TaubOctober 17, 2008

In a sign of how stock-market losses are pinching the nation’s richest investors, too, both Kirk Kerkorian’s Tracinda Corp. and Sumner Redstone’s National Amusements Inc. are taking steps to shore up huge investments.

Tracinda, Kerkorian’s holding company, has pledged an additional 50 million shares of MGM Mirage stock as collateral to backstop a $600 million credit line being used to buy a stake in Ford Motor Co., Bloomberg News reported. Tracinda holds nearly 149 million shares of MGM Mirage, or slightly less than 54 percent of the total shares, according to a regulatory filing. MGM’s shares have more than halved in the past month.

Bloomberg said Kerkorian is now risking 36 percent of MGM stock to cover his Ford investment. The embattled carmaker’s stock has plummeted by 66 percent or so since he initially bought his shares. Kerkorian currently owns 140.8 million shares, or 6.43 percent, of Ford, according to filings.

A Tracinda spokesperson told the wire service there was no margin call on the Bank of America Corp. loan following the decline of MGM’s share price.

Bloomberg pointed out that Kerkorian adviser Jerry York, the former International Business Machines and Chrysler CFO, said in an April 28 interview on Bloomberg Television that Kerkorian bought Ford shares “purely for investment purposes,” and that Ford had “really started moving the needle” under CEO Alan Mulally.

In the case of Redstone and National Amusements, the movie theater company said management is engaged in “constructive discussions” with its bank group and noteholders regarding a covenant issue under National Amusements’s debt, which is unsecured.

National Amusements, which holds Redstone’s controlling interest in Viacom and CBS Corp., did not disclose the specific covenant issue involved. However, it said the issue resulted from recent unprecedented market volatility, which led to a precipitous drop in the value of the CBS and Viacom shares. A committee of the National Amusements board, comprised of George Abrams, David Andelman, and Shari Redstone, is overseeing these discussions, the company added.

Earlier this week, National Amusements sold a total combined value of $233 million of stock in Viacom and CBS. It added that it does not intend to sell any additional shares. Shares of CBS and Viacom are both down around 60 percent this year alone.