Kerkorian pulling out of Ford, taking huge loss

updated 10:35 a.m. ET Oct. 22, 2008

NEW YORK - Billionaire Kirk Kerkorian’s investment firm said Tuesday it sold part of its stake in Ford Motor Co., taking millions of dollars in losses on the investment and marking an abrupt about-face from the optimistic expectations he had for the automaker just four months ago.

But while the move doesn’t bode well for Ford, industry observers said it may be more of a personal finance decision for Kerkorian, who has taken much larger losses on his majority stake in casino and hotel operator MGM Mirage Inc.

Tracinda Corp., which sold the 7.3 million Ford shares at an average price of $2.43, added that it plans to further cut what is now a 6.1 percent stake in the No. 2 U.S.-based automaker, for a potential total loss of more than half a billion dollars. The company said it may sell its remaining 133.5 million shares depending on market conditions.

Other investors followed Kerkorian’s lead and sold their Ford shares amid a drop in the overall market. The automaker’s shares fell 16 cents, or 6.9 percent, to $2.17.

Kerkorian has tried to leave his mark on all three of the Detroit automakers over the past decade. But Tracinda said in a Securities and Exchange Commission filing Tuesday that, in light of current economic conditions, it now sees “unique value” in other industries such as gambling, hotels, and oil and gas, so it’s moving its resources to those industries.

Tracinda spokeswoman Winnie Lerner declined to comment beyond the SEC filing.

Aaron Bragman, an auto analyst with the consulting company Global Insight, said Kerkorian’s decision may indicate the 91-year-old is consolidating his investments in the face of mounting overall losses rather than escaping than the slumping automotive industry or problems at Ford.

Kerkorian’s Ford-related losses pale in comparison to those he has taken at MGM, which has seen its shares plunge to $14.41 Tuesday from $91.95 at this time last year. Bragman pointed to Kerkorian’s move last week to pledge another 50 million shares of MGM stock as collateral to back a credit line used to buy Ford shares. Putting more of his MGM shares at risk could jeopardize his control of the company as well.

“It’s very unusual move for him to sell low like this,” Bragman said. “But MGM has lost more than 80 percent of its value, so it may have been something he was forced to do.”

Tracinda sold the Ford shares just four months after it purchased 20 million shares of the Dearborn, Mich.-based automaker at market rates, boosting the firm’s stake to 6.49 percent. Those purchases were announced two days after Kerkorian met with Ford Chief Executive Alan Mulally and Executive Chairman Bill Ford to discuss the company’s turnaround plan.

A week earlier, Kerkorian had acquired another 20 million shares through a tender offer for about $170 million, or $8.50 per share. Based on that share price, Kerkorian lost about $44.3 million in Tuesday’s sale.

At the time the tender offer was announced, Tracinda said it owned 100 million Ford shares at average cost of $6.91 per share. If the firm sold those shares at Tuesday’s closing price of $2.17 apiece, it would translate to a loss of about $474 million.

In announcing the June tender offer, Tracinda said it believed that Ford was starting to make progress on its restructuring plan, adding that it expected the automaker to post continued improvements.

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