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Exhaust Note #9: Kerkorian is Back

Tracinda Corporation Buying Into Ford Motor Company
Kirk Kerkorian, the incredibly wealthy 90-year-old investor and businessman, has long been well known among auto-industry watchers. He was first involved with Chrysler, back in the days when Lee Iacocca was turning things around. Later, his takeover attempt also sparked the notion of merging the company with another, which ultimately led to the creation of DaimlerChrysler. There are few today, other some who retired well off the deal, who would say that was a merger that was beneficial for either company, equals or not.
After eventually getting out of the Chrysler business, Tracinda bought enough of General Motors to get a seat on the board. Company man Jerry York held that seat and pushed for a GM-Renault-Nissan tie-up. Bound by duty to stockholders to explore the option instead of dismissing it outright, Rick Wagoner and GM staff worked with Renault-Nissan for a few months to prove what we all seemed to know in the first place: A Renault-GM tie-up didn’t make much sense. Kerkorian’s Tracinda sold off its GM stake and went home. The end of that story, right?


Well, yes and no. Whether by the “third time’s a charm” or “try, try again” schools of thought, Tracinda has been accumulating shares of Ford Motor Company since April 2, 2008, and offered today to buy more – while advising younger investors on how to buy shares in oil. And by more we mean enough to give Tracinda 5.6% of FoMoCo. But what does Tracinda really want? Does the company want take over a Detroit car company, no matter which? It does seem that Kerkorian is obsessed with making a major, direct impact on the automotive industry. His efforts so far have succeeded in shaking things up, often when it can be most disruptive, but not in improving the business overall.

Tracinda has never been a sidelines kind of stockholder, particularly when it comes to the automotive industry. Despite assurances that this purchase of Ford stock signals a vote of confidence in boss Alan Mullaly and progress thus far in the Way Forwar, it is difficult to imagine a situation where Tracinda simply watches from the boardroom sidelines. And if the past wasn’t enough indicator of hands-on stockholder Tracinda is, consider that Ford has confirmed a meeting between Tracinda’s usual automotive representative Jerry York and Alan Mullaly weeks before the purchase. Officially, the story is the Tracinda has not yet asked for a seat at the board table.
It seems only a matter of time before such a request is made. First, it would be out of character for Tracinda not to make that request. Second, when researching an expanded purchase includes meeting the boss, an active role is certainly indicated. The proposed Tracinda purchase would increase the company’s 4.7% stake (100 million shares, purchased since April 2, 2008) to about 5.6% with the purchase of 20 million more shares. Sweetening the pot, Tracinda offered $8.50 per share for the additional stock when Ford closed at $7.50 on April 25. The offer alone has helped bumped Ford’s stock to $8.32 on the afternoon of April 28.
On the other hand, Ford Motor Company only trades a certain kind of stock publicly. Another kind is held by the family, and that special stock gives them a 40% voting block and keeps Henry Ford’s descendants in control. Tracinda isn’t likely to be able to take the company over, unless the Ford family is ready to give up and there is no real indication of such.
So, what happens next? Is Tracinda’s involvement a threat to Ford’s forward momentum? What exactly are the company’s intentions? If history is any indicator, it will take considerable political strength from Alan Mullaly to keep the Tracinda involvement from causing significant distraction for Ford’s Way Forward plan.
As an activist shareholder, Tracinda questions decisions and present alternatives. For a company in the process of climbing out of a hole it took decades to dig into, comments from the peanut gallery divert time and resources away from the primary task. When Tracinda is involved, it seems the diversion most often ends in wasted time than in a stronger bottom line or corporate position. Ford doesn’t need the distraction any more than Chrysler or GM did.

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