Daniel Howes

Kerkorian’s Ford bid reveals much

Mass sale reflects shareholders’ fading faith, mogul’s contrarian nature.

This much can be said of Kirk Kerkorian’s tender offer for 20 million more shares of Ford Motor Co., which expired Monday:

The Las Vegas billionaire, who amassed an estimated $18 billion fortune betting against conventional wisdom, has more confidence in the Dearborn automaker’s turnaround plans than the owners of 1 billion shares of Ford common, whoever they are.

His offer to buy at $8.50 a share — a 38.8-percent premium over Tuesday’s closing price of $6.12 — was oversubscribed by a margin of 50-to-1, suggesting that more than a few folks want out of Ford lest a downward spiral accelerate amid $4-a-gallon gas and a slumping national economy.

Officially, Ford says the overwhelming response is "understandable" in light of Kerkorian’s proffered premium. It may be, in part, hedge funds taking quick profits or pension funds doing the same thing because it’s the smart thing to do (and often required in such cases). It also may be a sign of diminishing confidence in a company whose entire business world has been turned upside down since Easter.

"What I make of it is that he’s offering a pretty nice premium," says John Casesa, managing director of Casesa Shapiro Group in New York. "Number Two, it underscores among shareholders the outlook for Ford."

I’ll say. Which is probably precisely why ol’ Kerk waived his right to pull his offer and paid up: He’s a contrarian who buys when others bail, who’s as likely to use his new-found 5.6 percent stake in Ford to, over time, wheedle his influence into the boardroom — the better to fatten his return, however distracting the whole exercise may end up being.

Ford executives are shifting their North American turnaround plan into overdrive, just where Kerkorian and his lieutenant, Jerry York, want it to be, because they have no other choice. And they’re doing it quickly, which is probably as much a response to Kerkorian’s expanding ownership as it is to rapidly deteriorating business conditions.

Sales of pickups and full-size SUVs, the bedrock of Ford’s U.S. business, are tanking at alarming rates. Compact Focus sedans are flying out of showrooms, but cannot fill the financial void. Promising products like the Flex crossover are just reaching showrooms, and Ford’s Fiesta subcompact is more than a year away from showrooms.

Not good.

Despite the flood of bad economic news that has swamped Ford since Kerkorian confirmed his stake on April 28, I’m told the mogul’s investment thesis on the automaker has not changed: There is money to be made on the turnaround being led by CEO Alan Mulally.

Where cross-town rivals are closing truck plants and adding shifts at two car plants, Mulally and his team are pushing to convert excess truck plant capacity to car production, a move that could bring cars and crossovers from the Blue Oval’s impressive European portfolio into American showrooms.

Couldn’t come soon enough. To peruse Ford’s European product line — see http://www.ford.co.uk — is to understand just how much opportunity has been lost in parochial transatlantic battles, how wrong Ford planners got the small-car-in-America question, how consequential it all looms now given the fundamental structural change Ford faces at home.

Right now, Ford has killer small-car product. It’s overseas, but must be assembled in a U.S. plant by union workers if it hopes to make a dime off the effort — after costly retooling and the costly process of "federalizing" European-engineered vehicles to meet American standards.

The effort may fail, especially if gas prices move higher and limit Ford’s options or if retooling dangerously depletes Ford’s finite cash cushion. That Mulally & Co. are trying, that the top of the Glass House sees potential break-out opportunities in a grim outlook, tracks with Kerkorian’s contrarian bet on the Blue Oval.

But even Kerk doesn’t know whether he’ll be right or wrong — because no one does.