Ford Death Watch 45: Last Man Standing Pt. 2

Michael Martineck
by Michael Martineck
ford death watch 45 last man standing pt 2

I recently bought a dishwasher. Investor Kirk Kerkorian (a.k.a. “The Lion of Las Vegas”) bought 20m shares of Ford Motor Company. As a percentage of net worth, we each spent comparative amounts. But I’m pretty sure I got the better deal. I’m positive I’m going to have guacamole-free dinnerware for the next five years. Capt. Kirk can’t make anywhere near as bold a statement about the longer-term value of his Ford shares. Or can he?

In May, billionaire Kirk Kerkorian’s Tracinda Corp. tendered an offer to purchase Ford stock at $8.50 per share, back when the American automaker’s stock price hovering around $6.12. Investors offered 1.02 billion of the outstanding 2.24 billion shares. Tracinda increased its stake in FoMoCo from 4.7 to 5.5 percent. This week, Kirk's mob upped their share of FoMoCo to 148m shares, or 6.49 percent of Ford's public stock.

The deal is glass-like, as in half empty or half full. The fact that the nation’s seventh richest man is willing to overpay for Ford paper by 34 percent is a glowing vote of confidence in the company. Tracinda believes Ford will transcend its troubles.

Conversely, owners holding almost half the company’s value wanted to dump and scatter like the cops just showed up. These people didn’t think Ford stock would reach even $8.60 any time soon. And why would they? Ten years ago, the stock traded in the 60s. Exactly whose view is more valid is a matter of perspective. Do you put more credence in the opinion of a couple thousand people or one 91-year-old guy?

It helps to know more about Kirk. An accomplished pilot, Kerkorian made his early money delivering Canadian planes to England using the fastest, most profitable and life-risking route. After WWII, he turned surplus bombers into an enormously successful charter airline. Its core service was Los Angles to Los Vegas. Sin City is where Kerkorian made his banked billions, buying and selling casinos and hotels.

Kerkorian’s interest in America’s automotive world is a familiar story. In 1995, he ambled over to a house of straw. Chrysler fended off the hostile takeover. In 2006, it was the RenCen’s house of wood. Kirk blew into the boardroom with 9.9 percent of GM’s stock, but accomplished nothing. He unloaded it all and huffed away. Departing from the traditional tale, Kerkorian went back to Chrysler in 2007, as Daimler sought to shed the company. He was outbid by Cerberus Capital Management. A year later and he’s standing outside Ford’s house of glass.

So what, precisely, does Tracinda want out of its Ford position? Seven percent of a company is certainly a good chunk, but it’s far from controlling interest. The Ford family retains 40 percent control, no matter who else owns what. Sure, you get influence, but you are not in charge. Even if, according to regulatory filings, Kirk's willing to offer an an "infusion of additional capital."

Perhaps Ford is a good buy. There are angles from which to view Ford stock whereby it’s doesn’t look so limp. Cash and equivalents divide out to more than $11 per share. Property is worth about $16 per share. Eight dollars and fifty cents ain’t bad if you’re going to carve this pig up. Not that slicing and serving are in Ford’s future. The family has become quite attached. Besides, if GM or Chrysler go down, they’ll be other meat on the table.

If Tracinda were simply taking a position in an undervalued stock, why go whole hog for this one? As of June Standard & Poors put FoMoCo in the bottom 40 of their 500 index. Ford’s off 28.9 percent for the year. Soaring gas prices are shifting U.S. consumers' tastes faster than any company can re-tool. Ford is running far bellow capacity at eight of its 15 North American plants.

On the positive side, Ford is probably better positioned than Chrysler or GM to survive the near future. At the very least, they have some fuel-efficient cars to market, with another on the way. The other two American automakers have sucking chest wounds where their trucks and SUVs used to be. Still, that is an odd way to buy stock: wait to see if two major competitors kick it.

Kerkorian is euphemistically referred to as an “activist stockholder.” During his 18 months as a major GM player, he tried to force a deal with Renault/Nissan. When the board wouldn’t play his game, he sold his ball and left. Again, despite the back room meetings with Big Al and attendant ass-kissing, Kirk can’t realistically expect more power at Ford until the company is so far gone it's probably not worth it.

All Kirk can really do is depreciate CEO Alan Mulally’s authority, either by suggesting what Mulally was going to do anyway, thus sapping credit, or causing dissention. Put short, he can make a small mess just when it appears Mulally has set the Blue Oval for “pots and pans” and hit start. Half full, half empty, whatever. For Ford’s sake, I’d like to see Kerkorian come clean.

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2 of 50 comments
  • Geeber Geeber on Jun 23, 2008

    I don't know if I would go so far as to say that it was a "lie" that small cars couldn't be built profitably with union labor here in the U.S. Even UAW Chief Ron Gettelfinger admitted that Ford would not make any money on the Fiesta if it were to be built here; hence the UAW hasn't kicked up too much of a fuss over the decision to build it in Mexico. The key is what Ford does with this cost advantage. If it uses it to add more content to the car to better compete with the Fit, it will have a winner that will change the public's perception of what a small Ford is. If it builds another stripper fleet special, Ford will ultimately end up right back where it started...

  • Chui Chui on Jun 23, 2008

    Well, whatever Ford, et als, has planned they certainly have NO plans for $250 per barrel oil do they? Gazprom, the Russian giant, is the largest supplier of fuels in the world and stated last week that some time in 2009, mind you, oil would be $250 per barrel. One of Ford's Chief Engineers recently stated that "no economist predicted the economy to be as bad as it is or that the cost of fuel would be this high" in response to concerns about the apparently 'delayed timing' of focusing on small car. Well, he and I surely read different materials... If the heads within Ford could not forsee $4.00 per gallon fuel I'd not bet that they can forsee $7.50 per gallon fuel, either. Time will most assuredly tell though won't it?

  • Mike Beranek Would you cross this man? No way!
  • Skippity I kinda like styling. There’s plenty of lookalike boxes on the road. Nice to see something unique.
  • Make_light I drive a 2015 A4 and had one of these as a loaner once. It was a huge disappointment (and I would have considered purchasing one as my next car--I'm something of a small crossover apologist). The engine sounded insanely coarse and unrefined (to the point that I wasn't sure if it was poor insulation or there was something wrong with my loaner). The seats, interior materials, and NVH were a huge downgrade compared to my dated A4. I get that they are a completely different class of car, but the contrast struck me. The Q3 just didn't feel like a luxury vehicle at all. Friends of mine drive a Tiguan and I can't think of one way in which the Q3 feels worth the extra cost. My mom's CX-5 is better than either in every conceivable way.
  • Arthur Dailey Personally I prefer a 1970s velour interior to the leather interior. And also prefer the instrument panel and steering wheel introduced later in the Mark series to the ones in the photograph. I have never seen a Mark III or IV with a 'centre console'. Was that even an option for the Mark IV? Rather than bucket seats they had the exceptional and sorely missed 60/40 front seating. The most comfortable seats of all for a man of a 'certain size'. In retrospect this may mark the point when Cadillac lost it mojo. Through the early to mid/late 70's Lincoln surpassed Cadillac in 'prestige/pride of place'. Then the 'imports' took over in the 1980s with the rise of the 'yuppies'.
  • Arthur Dailey Really enjoying this series and the author's writing style. My love of PLC's is well known. And my dream stated many times would be to 'resto mod' a Pucci edition Mark IV. I did have a '78 T-Bird, acquired brand new. Preferred the looks of the T-Bird of this generation to the Cougar. Hideaway headlights, the T-Birds roof treatment and grille. Mine had the 400 cid engine. Please what is with the engine displacements listed in the article? I am Canada and still prefer using cubic inches when referencing any domestic vehicles manufactured in the 20th century. As for my T-Bird the engine and transmission were reliable. Not so much some of the other mechanical components. Alternator, starter, carburetor. The vehicle refused to start multiple times, usually during the coldest nights/days or in the most out of the way spots. My friends were sure that it was trying to kill me. Otherwise a really nice, quiet, 'floaty' ride, with easy 'one finger' steering and excellent 60/40 split front seat. One of these with modern mechanicals/components would be a most excellent highway cruiser.