Billionaire Kirk Kerkorian is unwinding his Ford Motor Co stake after the auto industry recession cut the value of his $995 million holding by two- thirds and put his firm's gambling investments at risk.
Kerkorian's Tracinda Corp sold 7.3 million Ford shares on Monday for an average of $2.43 each and said it contacted an investment bank about unloading the rest. Tracinda's remaining 133.5 million shares were valued at $311.1 million on Monday.
Kerkorian, 91, 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 stock in the second-largest US automaker. Tracinda's Ford shares cost an average of $7.07, according to data compiled by Bloomberg.
“It was an investment that made no sense,” said Maryann Keller, an independent auto analyst and consultant in Greenwich, Connecticut. “He's pulling in his horns and concentrating on areas he knows best.”
Tracinda “intends to further reduce its holdings” in Ford to focus on gambling, hotels and energy, according to the filing, which didn't give specifics.
Winnie Lerner, an outside spokeswoman for Tracinda with Abernathy MacGregor Group, declined comment about the investment firm's plans for Las Vegas-based MGM Mirage or other companies. Tracinda is the majority owner of MGM Mirage, the world's second-largest casino company, and holds a 35 per cent stake in Denver-based Delta Petroleum Corp, according to Bloomberg data.
Ford's Response: “We're going to stay focused on our turnaround plan,” Mark Truby, a spokesman for Dearborn, Michigan-based Ford, said in an interview. “Any questions about Tracinda's investment should be directed to Tracinda.”
Ford fell 15 cents, or 6.4 per cent, to $2.18 at 12:01 pm in New York Stock Exchange composite trading, pushing its slide in the past year to 74 per cent. MGM Mirage rose 84 cents, or 6.1 per cent, to $14.67. The shares have dropped 82 per cent in 2008.
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.
Credit Line: Louise Hennessy, a Bank of America spokeswoman, declined to comment whether Tracinda would now repay the credit line. Lerner also declined comment on or about the borrowing and how long it would take Tracinda to sell the remaining Ford shares.
Monday's sales ranged from blocks of 1.28 million shares to as few as 400, according to Tracinda's filing.
Kerkorian disclosed in late April he had acquired 100 million shares of Ford, and said June 19 he had boosted his stake to 140.8 million shares, or 6.43 per cent. He expressed support for Chief Executive Officer 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.
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.
Auto Recession: US industrywide 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.
“Kerkorian is a smart investor,” Shelly Lombard, a high-yield debt analyst at Gimme Credit in Montclair, New Jersey, wrote in a note on Tuesday. “Who needs the aggravation of trying to turn around a distressed company in a troubled industry in the middle of an economic downturn?”
Kerkorian, ranked 27th on Forbes magazine's list of the richest people in the US, with a net worth of $11.2 billion, had made several forays into the auto industry before his Ford venture.
In 1995, he led a hostile takeover bid for the former Chrysler Corp and won a board seat in exchange for calling off his attack. Later, he unsuccessfully sued the new DaimlerChrysler, accusing it of misleading investors about Daimler-Benz AG's 1998 purchase of the US automaker.
DaimlerChrysler lawyers estimated in 2003 that Kerkorian eventually made $2.7 billion on his Chrysler investment.
After taking what he initially said was a passive position in GM in 2005, Kerkorian gained a board seat for his adviser, Jerry York, and tried to force the world's largest automaker to merge with Renault SA and Nissan Motor Corp. Rebuffed, Kerkorian dumped his investment with an estimated $106 million profit in 2006.
Last year, he was among unsuccessful bidders to buy Chrysler from Daimler AG.
