According to the Wall Stree Journal, octogenarian investor Kirk Kerkorian's $8.50/share offer for up to 20 million shares of Ford stock is likely to be fully subscribed when it closes on Monday. Ya think? The Lion of Las Vegas' offer is well above Ford's closing price on Friday ($6.04). "The original tender included a clause reserving the right to pull the offer if Ford's stock price declined by 10 percent or more from its May 8 closing price of $8.20. But the Beverly Hills, Calif., company, which is wholly controlled by Mr. Kerkorian, declared it would not employ that escape route — in a sign of confidence in the future value of the company." Why is Kirkorian willing to pay over market price for a publicly traded stock? Hey. he's the billionaire and I'm not. Kerkorian and sidekick Jerry York have been publicly advocating the sale of Volvo and axing Mercury. One problem: Ford family members have long resisted putting Mercury down. In fact, Elena Ford ran Lincoln-Mercury for several years (and claimed credit for it's turnaround) before being "promoted" to head of marketing at Ford Motor Credit. The Journal raises interesting questions about how Kerkorian's ownership will affect the Ford heirs' iron grip on decision making. Said heirs own about three percent of Ford stock, yet control 40 percent of the voting rights. If and when FoMoCo needs more cash, Kerkorian seems prepared to provide it; but only if his shares get full voting rights. In that scenario, there's a good chance Crazy Henry's third generation lucky eggs will have to surrender control to Kirkorian to raise the cash. Either that or everybody loses everything in Chapter 11.
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Wonder if they could all file chapter 11 and regroup as one company to form AMC (All Makes Combined). It might work.
Other than proving malfeasance or some such by the Ford Family, I assume there’s no legal process that would force them to give up some control provided under the current setup. So, I’m trying to figure how this might work. Why would the Fords want to give up control? If they thought that others had better ideas about how to vote the shares, they could just accept the advice of the others and keep control. The scenario described by the article is that Ford would be out of money and unable to get any/enough on acceptable terms from other sources such that Kerkorian’s offer of funds for control would be the Ford’s best alternative.
If I understand this right, it would say that close to nobody else thought Ford was a safe/wise investment. So why would Krekorian? I can imagine that the Ford’s giving up some control might give the stock a bump for a long enough period for Kerkorian to dump it and exit. Not real appealing from where I sit. But this guy’s got more than I do, so he’s worth paying attention to. When the GM board proved insistent on keeping their heads where they shouldn’t have been, Kerkorian bailed, and that decision has proven wise.
Any thoughts?
Did it ever occur to the Fords that their lopsided share/vote arrangement is seriously suppressing the value of the common shares, and their own holdings? That is, the would all be much richer if they gave it up. They could cry all the way to the bank.
Scottie: Wonder if they could all file chapter 11 and regroup as one company to form AMC (All Makes Combined). It might work.
Read up on British Leyland to see how well that plan worked for the Brits. A related good read is “Whatever Happened to the British Motorcycle Industry” by Bert Hopwood. Short answer — the entire industry failed…
“Why would the Fords want to give up control?”
By negotiations, that’s how. Kerkorian could, for example, say he is willing to put another $5B into newly issued Ford stock. Up until now, Kirk has been buying Ford Common stock on the open market, which means not a penny of his investment has shown up in the Ford treasury; he has simply been buying out other investors. For FoMoCo to actually see the money it would have to go directly to the company. A buyer of newly issued stock can demand anything in a negotiation and if the company wants the money, they have to agree. Kirk could demand that he wants to buy the “Class B” shares just like the family members (and the Ford Foundation) hold by right of inheritance. Or, he could buy Common stock but demand that the voting rights between the Common and Class B shares be leveled. At the most recent annual meeting many outside investors pushed to have Ford stock restructured into a one-share, one-vote system … but of course the family was able to shoot that down this time. The poor babies are already suffering the lack of dividend payments.
Under Mulally, I was somewhat optimistic about Ford’s chances compared to the other big 2.8.
But I’ve recently become aware the Ford family history of craptastic micromanaging – and my faith in their survival has cratered to near GM/Chryslerberus levels.
The Ford family already gave up its control over the company. When they agreed to the mortgage up to the eyeballs secured loan, their ability to control the company was as good as gone. Now they just have to decide who they’d rather formally give control to, Captain Kirk or Citigroup, Goldman Sachs, and JP Morgan.
He’s a nonagenarian, not an octogenarian — born in 1917.
The Ford family’s ability to control 40% of a publicly traded company with only 3% of the stock is being tried in court as we speak. If the family loses, well, there will be some changes.
Bob
Please tell me there is something in this story that could force William Clay Ford to cede control of the Lions.