Ford heirs mull Kerkorian risk

Ford Jr. urges family unity with company, board

Bryce G. Hoffman / The Detroit News

Days after billionaire investor Kirk Kerkorian unveiled his plan to become Ford Motor Co.’s largest private shareholder, the heirs of Henry Ford gathered Saturday near Dearborn for their spring meeting.

Several generations of Fords were briefed by CEO Alan Mulally on the company’s progress with its turnaround plan, reviewed the newest car and truck offerings, and discussed Kerkorian’s bid to bolster his 100-million-share stake by at least another 20 million shares, according to people familiar with the meeting.

Family members expressed concern that Kerkorian might pose the first serious challenge to their control of the company in its 104-year history. That control also will be challenged Thursday when shareholders meet in Wilmington, Del., and consider a perennial resolution that aims to strip the family’s Class B shares of their super-voting power. Without the support of the family, which votes its shares as a bloc, the resolution has little chance of passing.

During Saturday’s meeting, Executive Chairman Bill Ford Jr. reassured family members that those shares would protect their interest in the company from Kerkorian or anyone else who might try to seize control. He said it was important at times like these to remain unified behind Mulally and the board of directors.

It was a message family members are said to have heard loud and clear, but their concern is understandable.

In the family’s meeting last spring, the dismal state of Ford’s finances prompted one faction to suggest hiring Wall Street dealmakers Joseph Perella and Peter Weinberg to explore the family’s options — including a possible sale of their shares. It was the first sign of a rift within the family, and few were watching it develop with more interest than Kerkorian’s conduit to the automotive industry, Jerry York.

York was listening, too, when rumors — which proved unfounded — began circulating last fall that the Ford family’s continued control of the company was impeding a deal on a new national contract with United Auto Workers.

Now Kerkorian has become Ford’s largest private shareholder. If his tender offer is successful, the Las Vegas casino mogul would own 5.6 percent of Ford, a significantly larger chunk than the Ford family. The family’s 70.9 million Class B shares represent 3.3 percent of Ford, but give the family 40 percent of the voting power and controlling interest in the company that bears their name.

Kerkorian’s plans for Ford remain to be seen. But his entry into the fray adds new complexity to deliberations inside the family, which used part of its Saturday meeting to discuss the various ways Kerkorian could leverage his stake to influence the automaker’s direction.

"It will be one more influential voice in the debate about the company’s progress," veteran Wall Street analyst John Casesa of the Casesa Shapiro Group LLC said of Kerkorian.

Ford changed in last year

Ford spokesman Mark Truby confirmed Tuesday that the Saturday meeting took place, but declined to discuss details.

"The Ford family consistently has said it remains united and fully behind our plan to transform Ford into a lean global enterprise delivering profitable growth for all," Truby said.

Much has changed in the year since the Ford family met last spring.

Ford shrunk its annual loss from $12.6 billion in 2006 to $2.7 billion last year, and Mulally says the company is on track to return to profitability in 2009. Ford has shuttered factories and eliminated more than 25,000 manufacturing jobs in North America. It has negotiated a landmark cost-saving contract with the United Auto Workers. It sold Aston Martin and is in the process of selling its two other British luxury brands, Jaguar and Land Rover. And it is about to enter one of its strongest new-product launch cycles in recent memory.

Today, Ford’s market capitalization exceeds that of rival General Motors Corp. by $4 billion. And GM is still struggling with unresolved issues with the UAW.

One person familiar with the family situation said they are pleased with the progress the company has made over the past year, adding that there has been no hint of dissension since last spring’s meeting.

But one thing has not changed: Ford’s shares, buoyed by the company’s first-quarter numbers and Kerkorian’s subsequent purchase offer, nonetheless remain deeply depressed.

When Bill Ford Jr. took over as chairman in 1999, the family’s Class B shares had a market value of about $2.25 billion. Today, they are worth $586 million. Moreover, the $130 million in annual dividend payments family members were accustomed to receiving were eliminated in 2006.

Many family members also have significant holdings of Ford common stock, making their exposure to the company’s travails even more acute. Analysts say the pressure on family members, particularly the scores of smaller shareholders not directly involved in the operations of the company, is increasing.

"We’re talking third-, fourth-generation people — and we’re also talking about people who have significant wealth deterioration," said analyst Himanshu Patel, who follows the company for JPMorgan. "Control matters, but I think wealth matters more."

There is no evidence that anyone in the family is keen to sell right now. And there is at least a tacit agreement among members of the family that relatives have the first right of refusal before any shares are sold to outsiders. During last year’s spring family meeting, Elena Ford, daughter of Greek shipping magnate Stavros Niarchos, offered to buy out any family members who were losing confidence in the company.

If Ford heirs sold their stock outside the family, their shares would convert to regular Class A shares and lose their super-voting power.

Kerkorian’s interest unclear

It is not clear whether Kerkorian has any interest in convincing family members to sell their shares or relinquish their control over the company. York has said publicly that he views their continued ownership as a source of stability in a turbulent industry.

But York also has made it clear he is interested in seeing Ford sell its Volvo Cars unit, shut down its lackluster Mercury division, leverage its 33 percent stake in Japan’s Mazda Motor Co. into more Ford-brand vehicles and potentially explore an alliance between Ford and another automaker.

In 2006, York and Kerkorian tried unsuccessfully to force GM into a three-way alliance with France’s Renault SA and Japan’s Nissan Motor Co. When that fell apart, it was rumored they were interested in seeing a similar tie-up between Renault-Nissan and Ford.

Sources close to Carlos Ghosn, who heads Renault and Nissan and worked for family-controlled Michelin earlier in his career, have said he was averse to considering such a tie-up as long as the Ford family remains in control. Patel said that is still true, not only for Renault-Nissan, but also for almost any potential partner.

"A prerequisite for any sort of equity investment into Ford would be the Ford family reducing or eliminating its super-majority voting control," Patel said.

Mulally, a relative newcomer recruited from Boeing Co. to engineer Ford’s turnaround, has made it clear that he is more interested in seeing the automaker better integrate its own global operations than pursue an alliance.

All of that remains to be seen.

Family members may have left last Saturday’s meeting in lock step, but things can change. Another iconic business dynasty — the Bancroft family, former controlling shareholders of Dow Jones & Co., owner of the venerable Wall Street Journal — earlier this year relinquished control of its commercial empire, which had long been considered inviolable.

The Bancrofts initially scoffed at the idea of selling the Journal to media tycoon Rupert Murdoch, but that deal was consummated last summer — 10 years after a minority faction within the family first raised the idea of selling the newspaper.

Ford family members followed the Bancroft saga closely, e-mailing news accounts to each other as they were published in the Journal and the New York Times, among others. Some even observed that the situation confronting the Bancrofts was uncomfortably close to their own.

"It’s an uphill battle for the Ford family to maintain control," said Douglas Brinkley, author of the Ford history "Wheels for the World." "If the company starts making profits, the family will be there for the foreseeable future. All of them really care about the brand and that the name continues to mean something positive in American life. But I don’t think they want to go broke."