Risk & Compliance

U-turn for Kerkorian: He’s Selling Ford Stake

Investor, long aided by veteran CFO Jerry York, reverses course on autos to build up investment in hotel-casinos and oil and gas.
Stephen Taub and Roy HarrisOctober 21, 2008

Kirk Kerkorian is seeking the exit ramp for his investment in Ford Motor, suggesting he will move his holdings back to hotel-casinos and oil and gas.

Tracinda Corp., the 91-year-old billionaire’s investment vehicle, said in a press release and a regulatory filing that on Monday he sold 7.3 million shares of the struggling car maker in the open market. The average price was $2.43 per share.

Tracinda also said that it intends to further reduce its holdings of Ford, and could possibly sell off its remaining 133.5 million shares, representing about 6.09 percent of the outstanding shares. It all depends upon market conditions and available sales prices, it added.

This is a major setback for the legendary investor, who reportedly paid as much as $8.50 a share for his Ford stock. He built his position in late April when he bought 100 million shares, and in June he said he had lifted the stake to 140.8 million shares.

Kerkorian had made other major investments in Detroit in the past — especially Chrysler — but in the Ford investment he seemed less interested in pushing for management change. His advisor, former IBM and Chrysler CFO Jerry York, in fact, was quoted as saying that he and Kerkorian had been pleased with Ford CEO Alan Mullaly’s achievements in cost-cutting and refocusing operations. “I think he has the skill set, the passion, the vision to succeed,” York said at the time. “We have a lot of confidence in him.”

Thus, the turnaround took some market-watchers by surprise. “To me, it was an investment that made no sense,” Maryann Keller, an auto analyst and consultant, told Bloomberg News. Kerkorian, she said, is “pulling in his horns and concentrating on areas he knows best.”

Ford reported an $8.7-billion second-quarter loss, and another large loss is foreseen for the third quarter, helping to move the value of its stock price recently to below $2 a share.

Kerkorian’s other major investment area remains gaming. Meanwhile, however, he has also taken a beating on his controlling stake in MGM Mirage, as well.

Still, the investor said in the same announcement detailing his Ford sale that he sees opportunities in a few other industries, specifically gaming and hospitality and oil and gas. He asserted that in light of current economic and market conditions, there is unique value in these industries. Tracinda has “decided to reallocate its resources and to focus on those industries,” its news release said.

Kerkorian’s announcement comes just a few days after he 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.